The government is considering a proposal to allow even greater accelerated depreciation deductions than those specified by MACRS.
a. For which type of company would this change be more valuable, a company facing a 10 percent tax rate or one facing a 30 percent tax rate?
b. If companies take larger depreciation deductions in the early years of an investment, what will be the effect on reported earnings? On cash flows? On project NPVs? How do you think the stock market might respond if the tax law changes to allow greater accelerated depreciation?