Question #1 (25 points) Choose whether each of the following statements is true
ID: 2615492 • Letter: Q
Question
Question #1 (25 points) Choose whether each of the following statements is true or false. Write the responses in your answer book with explanation. (Credit is only given if a brief explanation is provided a) Land can be depreciated. (Explain why or why not) b) The MACRS (GDS) and (ADS) systems result in full recovery of the capital investment of the asset if it is kept beyond its recovery period. c) A defender must always be replaced at its economic life regardless of the AW of the best challenger. d) Annual inflation rate is the rate used to discount cash flows all in amounts that are in real dollars. e) The effective income tax rate implies that state income taxes are deductibles from Federal income taxes.Explanation / Answer
(A)
Land can’t be depreciated.
Reason: Depreciation Means Loosing of value over a period of time as it ages and become obsolete.
Whereas land doesnot have life i.e the life of Land is unlimited so it can’t be depreciated. It’s value can be comedown and it can be shown as business expense.
(B) The MACRS( GDS) and ADS system result in full recovery of the capital investment of the asset if it is kept beyond its recovery period. It is corret
Reason: Recovery period Represents total number of year allowed to claim depreciation. If it will sell out before the then one cannot claim full value of the asset as depreciation.
(C)A defender must always be replaced as its economic life regardless of the AW of best challenger No it not correct.
Replacement theory says Defender and Challenger always two mutual exclusive alternatives. Defendor is the current installed asset where as challenger is the potential alternative.
(D)No, it is not correct.
The rate is in real dollear. The rate determined based on Current price index .
(E) It is not correct.
Federal income tax and state income tax are two different.
Federal income tax are collected by federal government and regardsless of in which stae you live where as state tax are collected by individual stae government