How Does Depreciation Affect the Calculation of a Project's Payback

question 40

Multiple Choice

How does depreciation affect the calculation of a project's payback period?

• A)Depreciation is deducted from the annual cash inflows.
• B)Depreciation is added to the annual cash inflows.
• C)Depreciation is only deducted if the payback period exceeds five years.
• D)Depreciation does not affect the payback calculation.

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Definitions:

Inventory Costs

Expenses associated with managing and holding inventory, including storage, insurance, taxes, and potential obsolescence.

Total Inventory

The total amount of goods and materials held in stock by a business at a given time, including raw materials, work-in-progress, and finished goods.

Cash Discounts

A reduction in invoice price offered by sellers to buyers as an incentive for early payment.

Credit Terms

Conditions under which credit is extended by a lender to a borrower, including payment due dates, interest rates, and repayment schedules.