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

question 71

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 Modified Accelerated Cost Recovery System (MACRS) and changes to the straight-line depreciation, 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:

Future Amount

The projected value of a current asset or amount of money at a specified future date, taking into account factors like interest or growth rates.

Present Value

The current valuation of future money or cash flow series, factoring in a predetermined interest rate.

Annual Payments

Regular payments made once a year, often referred to in the context of loans, annuities, or insurance policies.

Interest Rate

The percentage charged on a loan or paid on an investment over a specific period of time, often annually.