After Computing a Net Present Value That Indicated That the Return

question 48

Essay

After computing a net present value that indicated that the return would be in excess of the cost of capital,you presented an investment proposal to the CFO of your company.The CFO notices that you assumed that the cost of the asset would be written off evenly over its economic life.She comments that the firm often uses accelerated depreciation (a method under which more depreciation is recorded in the early years of an asset's life and less later).How will this change in depreciation methods affect the net present value? Explain.

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