Firm A uses straight-line depreciation. Firm B uses MACRS depreciation. Both fir

Question

Firm A uses straight-line depreciation. Firm B uses MACRS depreciation. Both firms bought $60,000 worth of equipment last year. Both firms are in the 35 percent tax bracket. The operating cash flows for each firm are identical except for the depreciation effects. Given this, you know the: depreciation expense for Firm A will be greater than Firm B's expense every year. equipment has a higher value on Firm B's books than on Firm A's at the end of year two. operating cash flow of Firm A is less than that of Firm B for year two. market value of Firm A's equipment is greater than the market value of Firm B's equipment. market value of Firm B's equipment is greater than the market value of Firm A's equipment.

Explanation / Answer

. operating cash flow of Firm A is less than that of Firm B for year two.

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