Straight-line or MACRS depreciation
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We've emphasized that the firm should pay attention only to cash flows when assessing the net present value of proposed projects. Depreciation is a non-cash expense. Why then does it matter whether we assume straight-line or MACRS depreciation when we assess project NPV?
Straight-Line or MACRS Depreciation
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Solution Summary
Response explains the difference between straight-line and MACRS depreciation.
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Depreciation provides taxshield benefits. Higher depreciation leads to saving of taxes which leads to reduction in cash outflow. Hence this results in higher NPV.
As per bellaonline, "MACRS (Modified ...
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