Corporate Finance
3rd Edition
ISBN: 9780132992473
Author: Jonathan Berk, Peter DeMarzo
Publisher: Prentice Hall
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Chapter 8.4, Problem 1CC
Summary Introduction
To explain: The advantages for a company to utilize the most accelerated depreciation schedule possible for tax purposes.
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Students have asked these similar questions
Which depreciation method is most common for financial reporting? Which depreciation method is most common for tax reporting? Why do companies choose these methods?
a. For reporting purposes, management prefers higher
profit; for tax purposes, lower taxable income is desired.
To meet these goals, firms often use different methods
of depreciation for tax and reporting purposes. Which
depreciation method is best for reporting and which for
tax purposes in the short run? Why?
The faster an asset can be depreciated, according to IRS rules, the greater a company's after-tax profits. Is this true or false?
Chapter 8 Solutions
Corporate Finance
Ch. 8.1 - How do we forecast unlevered net income?Ch. 8.1 - Prob. 2CCCh. 8.1 - Prob. 3CCCh. 8.2 - Prob. 1CCCh. 8.2 - What is the depreciation tax shield?Ch. 8.3 - Prob. 1CCCh. 8.3 - Prob. 2CCCh. 8.4 - Prob. 1CCCh. 8.4 - What is the continuation or terminal value of a...Ch. 8.5 - Prob. 1CC
Ch. 8.5 - How does scenario analysis differ from sensitivity...Ch. 8 - Pisa Pizza, a seller of frozen pizza is...Ch. 8 - Kokomochi is considering the launch of an...Ch. 8 - Home Builder Supply, a retailer in the home...Ch. 8 - Hyperion, Inc. currently sells its latest...Ch. 8 - Prob. 5PCh. 8 - Prob. 6PCh. 8 - Castle View Games would like to invest in a...Ch. 8 - Prob. 9PCh. 8 - Prob. 10PCh. 8 - Prob. 11PCh. 8 - A bicycle manufacturer currently produces 300,000...Ch. 8 - Prob. 13PCh. 8 - Prob. 14PCh. 8 - Prob. 15PCh. 8 - Prob. 16PCh. 8 - Prob. 17PCh. 8 - Prob. 18PCh. 8 - Prob. 20PCh. 8 - Prob. 21P
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Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Similar questions
- How does depreciation give tax benefits? What are the advantages of Internal Financing?arrow_forwardDiscuss the difference between the straight-line method of depreciation and the accelerated methods. Why do companies use different depreciation methods for tax reporting and financial reporting?arrow_forwardIn which situation does the tax depreciation allow the firms to defer paying income taxes?arrow_forward
- Illustrate the significance of depreciation and income taxes?arrow_forwardWhat are the benefits of calculating depreciation differently for financial reports and for tax purposes?arrow_forwardWhat is a modified accelerated cost recovery system(MACRS)? Speculate as to why this system is nowrequired for tax purposes.arrow_forward
- How is a business activity distinguished from an investment activity? why is this distinction important for the purpose of calculating federal income taxes? What types of losses may potentially be characterized as passive losses?arrow_forwardExplain when a firm may recognize a deferred tax asset under SFAS No. 109. Howshould deferred tax assets that are not expected to be realized be accounted for?arrow_forwardIf a company wanted to take advantage of depreciation expenses, how would this company accomplish this? What would be the advantages? Are there any disadvantages?arrow_forward
- What is depreciation and amortization? What's the difference? It is an accounting concept that has an indirect impact on cash flow as it is deductible for tax purposes and lowers the overall amount of taxes paid for that period. Therefore, it does impact or lower cash outflows for taxes. That is called the tax shield of depreciation and amortization. Over the course of my career, companies have increased their percentage of intangible property that must be amortized. Now, it is very common where companies will have little property, plant and equipment, but lots of intangible property. Why?arrow_forwardWhy do deferred tax assets arise? Explain your answer with suitable example.arrow_forwardConsider the following income statement: $ 510,944 332,416 75,600 Sales Costs Depreciation Таxes 25% Calculate the EBIT. EBIT Calculate the net income. Net incomearrow_forward
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