Suppose a corporation can change its depreciation method so that its tax payments will decrease by $5,000 this year but increase by $5,000 next year. Given this change indepreciation method, what do you expect to happen to the value of this company?O The change will decrease the value of the company because investors don't like changes in accounting methods.O The change will increase the value of the company because the value of the cash savings this year exceeds the cost of the cash payments next year.O The change will have no impact on the value of the company because its cash flow over time will be the same.The change will decrease the value of the company because lower tax payments this year result from lower reported income.

Depreciation:Reducing the value of the tangible asset due to its wear and tear over its useful life…

Answered: ill decrease by $5,000 this year b

Business

Accounting

ill decrease by $5,000 this year b

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Concept explainers

Present Value

Present value (PV) is defined as the current or present value of all future sums of cash flow or money at a specified rate of return. This rate of return is known as the discounted rate, which is essentially the interest rate, discounted over some time. The expected cash flows are discounted at a discount rate to compute the present value. The higher the discount rate, the higher the future value (FV), but the lower the present value.

Question

Suppose a corporation can change its depreciation method so that its tax payments will decrease by $5,000 this year but increase by $5,000 next year. Given this change in
depreciation method, what do you expect to happen to the value of this company?
O The change will decrease the value of the company because investors don't like changes in accounting methods.
O The change will increase the value of the company because the value of the cash savings this year exceeds the cost of the cash payments next year.
O The change will have no impact on the value of the company because its cash flow over time will be the same.
The change will decrease the value of the company because lower tax payments this year result from lower reported income.

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