hard · Investment Banking
A company uses MACRS depreciation for tax purposes (30M in Year 1) and straight-line depreciation for book purposes (20M in Year 1).
If the tax rate is 25%, what is the impact on the financial statements?
- A Deferred Tax Asset (DTA) of 2.5M is created; Net Income increases by 2.5M.
- The Balance Sheet is unaffected because total assets and liabilities remain equal.
- Cash flow decreases by $2.5M because the company is paying more in taxes.
- A Deferred Tax Liability (DTL) of $2.5M is created; Cash Flow from Operations increases by $2.5M.
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