Principles of Managerial Finance, 12e (Gitman)
Chapter 3 Cash Flow and Financial Planning
Learning Goal 1: Understand tax depreciation procedures and the effect of depreciation
on the firm's cash flows.
1) The depreciable life of an asset can significantly affect the pattern of cash flows. The shorter
the depreciable life of an asset, the more quickly the cash flow created by the depreciation
write-off will be received.
Answer: TRUE
Topic: Depreciation and Cash Flows
Question Status: Previous Edition
2) Non-cash charges are expenses that involve an actual outlay of cash during the period but
are not deducted on the income statement.
Answer: FALSE
Topic: Depreciation and Cash Flows
Question Status: Previous Edition
3) Under the basic MACRS procedures, the depreciable value of an asset is its full cost,
including outlays for installation.
Answer: TRUE
Topic: Depreciation and Cash Flows
Question Status: Previous Edition
4) Business firms are permitted to systematically charge a portion of the market value of fixed
assets, as depreciation, against annual revenues.
Answer: FALSE
Topic: Depreciation and Cash Flows
Question Status: Previous Edition
5) Given the financial manager's preference for faster receipt of cash flows, a longer depreciable
life is preferred to a shorter one.
Answer: FALSE
Topic: Depreciation and Cash Flows
Question Status: Previous Edition
6) For tax purposes, using MACRS recovery periods, assets in the first four property classes are
depreciated by the double-declining balance (200 percent) method using the half-year
convention and switching to straight line when advantageous.
Answer: TRUE
Topic: Depreciation and Cash Flows
Question Status: Previous Edition
7) The MACRS depreciation method requires use of the half-year convention. Assets are
assumed to be acquired in the middle of the year and only one-half of the first year's
depreciation is recovered in the first year.
Answer: TRUE
Topic: Depreciation and Cash Flows
Question Status: Previous Edition
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