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The paper investigates how the selection of depreciation methods impacts firm value and tax payments as marginal tax rates increase.

Optimal Depreciation Methods When Marginal Tax Rates Increase.

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Evaluates how different depreciation methods affect tax payments and firm value, indicating implications for tax strategies.

The paper investigates how the selection of depreciation methods impacts firm value and tax payments as marginal tax rates increase.
Analysis of straight-line and sum-of-the-years' digits (SYD) depreciation methods
Discussion of limitations and specific conditions for depreciation preference
Effects of altering assumptions on depreciation outcomes
SYD depreciation leads to higher tax deductions in early periods compared to straight-line, affecting present value of future cash flows.
The choice of depreciation method can significantly change tax payment timings and firm valuations.
Conditions were identified under which straight-line depreciation may be more beneficial than SYD.

John C. Lere (1980) studied this question.

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