Which of the following statements is FALSE? a. The opportunity cost of using a resource is the value it could have provided in its best alternative use. b. We begin the capital budgeting process by determining the incremental earnings of a project. c. The marginal corporate tax rate is the tax rate the firm will pay on an incremental dollar of pre-tax income. d. Investments in plant, property, and equipment are directly listed as expense when calculating earnings.

Question

Business

Ben Bird

1 December, 04:36

Which of the following statements is FALSE? a. The opportunity cost of using a resource is the value it could have provided in its best alternative use. b. We begin the capital budgeting process by determining the incremental earnings of a project. c. The marginal corporate tax rate is the tax rate the firm will pay on an incremental dollar of pre-tax income. d. Investments in plant, property, and equipment are directly listed as expense when calculating earnings.

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Marley Braun · Answer 1

d. Investments in plant, property, and equipment are directly listed as expense when calculating earnings.

Explanation:

Purchases that involve the acquisition of plant, property, and equipment (PPE) are recorded in the balance sheet and not on the income statement. The cost of the plant or the property is recorded in the general ledger account for the specific item. The PPE expenditure is a long-term investment or non-current asset and not an expense for that year only.

The total cost of the asset is not expensed on a single financial year. Through depreciation, the expenditure is spread in all the useful years of the asset. In other words, the cost of the PPE will affect the profits in equal proportions throughout the life of the asset.