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

question 114

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.

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Definitions:

Depreciation

Strategically spreading out the cost of a tangible asset throughout its period of usefulness.

Accounting Estimate

An approximation of a financial transaction's value when precise measurement is not possible, often used in accrual accounting.

Financial Statements

Reports that provide detailed information about a company's financial condition in terms of income, expenses, assets, and liabilities.

Useful Life

The estimated period over which an asset is expected to be functional and economically feasible for its intended purpose.