A Company Used the Net-Present-Value Method to Analyze an Investment

question 27

Multiple Choice

A company used the net-present-value method to analyze an investment and found the investment to be very attractive. If the firm used straight-line depreciation and changes to the Modified Accelerated Cost Recovery System (MACRS) , the investment's net present value will:

• A) increase.
• B) remain the same.
• C) decrease.
• D) change, but the direction cannot be determined based on the data presented.
• E) fluctuate in an erratic manner.

---

Definitions:

Journal Entry

A documentation of a financial transaction in which the total debits equal the total credits and is entered into the accounting records.

Times Interest Earned Ratio

A financial ratio that compares a company's operating income to its interest expenses, indicating how well it can cover interest payments with earnings before interest and taxes.

Interpret

To explain or understand the meaning of something, often involving analysis or putting data into context.