If Depreciation Expense in Year One of a Project Increases

question 152

Multiple Choice

If depreciation expense in year one of a project increases for a highly profitable company,

• A) net income decreases and incremental free cash flow decreases.
• B) net income increases and incremental free cash flow increases.
• C) the book value of the depreciating asset increases at the end of year one.
• D) net income decreases and incremental free cash flow increases.

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Definitions:

Research Hypothesis

A specific, testable prediction about the expected outcome in a study, often indicating a predicted relationship between variables.

Nondirect Relationship

A relationship between two variables where changes in one variable do not lead to consistent and predictable changes in another variable directly.

One-tailed

A hypothesis test where the area of interest is only on one side of the sampling distribution, indicating either a greater-than or less-than direction but not both.

Two-tailed

A type of statistical test that considers both directions of a possible effect, looking for deviations from a null hypothesis in two opposite directions.