Suppose a corporation can change its depreciation method so that its t

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.

A) The change will have no impact on the value of the company because its cash flow over time
will be the same.
B) 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.
C) The change will decrease the value of the company because lower tax payments this year
result from lower reported income.
D) The change will decrease the value of the company because investors don’t like changes in
accounting methods.

ANSWER

B