Question

Question 27 1 pts Which of the following statements regarding depreciation is incorrect? When filing for corporate taxes, companies prefer to use the depreciation method that allows them to deduct equal amount of depreciation each period. Under the accelerated method, the IRS allows an asset to be fully depreciated to a zero book value. O When selling a partially depreciated asset, a firm is only responsible for taxes on the sale price minus the un-depreciated book value O The straight line method is preferred when reporting financial income to shareholders.

Answer 1

Question 27)

Answer: The Incorrect Statement is : While filing the Corporate Taxes, comapnies prefer to use the depreciation method that allows them to deduct equal amount of depreciation each year;

This is incorrect as the depreciation for taxation is stipulated by the local tax laws of each country and are directed accordingly.

Question 26)

Answer: II, III and V; For relevant cash flows in analysis of a project, the Taxes, Opportunity costs and side effects (Loss of sales, increase in other costs etc) are required to be considerd; Sunk costs are the ones already spent and hence not considered in the financial projections; Similarly, the financing costs are not considered as the cash flows shall be discounted using the cost of capital.