The Present Value at Any Given Discount Rate of the Depreciation

question 11

Multiple Choice

The present value at any given discount rate of the depreciation tax shield is:

• A) equal for all depreciation methods.
• B) higher with MACRS than straight-line depreciation.
• C) higher for the 10^th year than the 7-year recovery period class.
• D) likely to increase annually due to inflation.

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Definitions:

Annual Dividend

The total amount of money paid to shareholders from a company's profits over the course of a year per share of stock.

Floatation Costs

Expenses incurred by a company in issuing new securities, including underwriting fees and legal and administrative fees.

Cost of Retained Earnings

The rate of return that shareholders expect on the earnings that a company keeps and reinvests in its operations.

Risk Premium

The extra return expected by an investor for holding a risky asset rather than a risk-free asset.