Crystal Clear Communications: Investing in the Future

How can Crystal Clear Communications benefit from purchasing a new satellite?

A. By increasing future earnings
B. By reducing annual expenses
C. By enhancing employee productivity

Answer:

A. By increasing future earnings

Crystal Clear Communications is considering purchasing a new satellite to boost future earnings and take advantage of the tax benefits of depreciation, which will reduce the net income generated by the asset annually. Depreciation is the process of allocating the cost of a long-term asset over its useful life. By depreciating the satellite, Crystal Clear Communications can deduct a portion of the asset's cost from its taxable income each year, reducing the amount of taxes owed. This provides a significant tax benefit for the firm.

Furthermore, the purchase of the satellite will increase the company's earning potential, making it a worthwhile investment. By considering both the earning potential and tax benefits, the firm can make a well-informed decision regarding the purchase of the satellite.