Effects of depreciation and corporate taxes on asset life under debt-equity financing. (Issues in Corporate Investments) From: Financial Management | Date: June 22, 1992| Author: Prezas, Alexandros P. | COPYRIGHT 1992 Financial Management Association. This material is published under license from the publisher through the Gale Group, Farmington Hills, Michigan.  All inquiries regarding rights should be directed to the Gale Group.Copyright information

Under debt-equity financing, the optimal life of an asset increases with the amount of riskless debt used. Also, higher depreciation increases (does not affect) optimal life if asset book value is positive (zero) upon termination. Further, the optimal life of an asset fully depreciated before termination increases with the corporate tax rate. The optimal life of an asset not fully depreciated before disposal, however, decreases with a higher corporate tax rate if salvage value is less than bo...

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