Accelerated Depreciation Effect on DCF
If you switch from straight line to accelerated depreciation, does the NPV of your FCFs go up because you get a lower tax bill in earlier years? Or does it not make a difference since the total depreciation amount is the same in both cases (straight line and accelerated)?
Think a little harder here (hint: time value of money).
See accelerated depreciation as a tax deferral. The company will pay less taxes during the first couple of years and then there will be a reverse effect: they will pay more taxes. Regardless of the depreciation method used, the total amount of depreciation is the same. The only difference between accelerated and straight line is the length of the depreciation period.
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