The Calculation of the Net Present Value of an Investment

question 31

Multiple Choice

The calculation of the net present value of an investment project requires that the depreciation tax shield be included at:

• A) the amount of the depreciation with no adjustment for taxes.
• B) the amount of the depreciation times one minus the tax rate.
• C) the amount of the depreciation times the tax rate.
• D) zero, since depreciation is not relevant to the calculation of net present value.

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Definitions:

Isoquants

Curves that represent combinations of various inputs which yield the same level of output.

Isocost Lines

Graphical representations in economic theory that showcase all possible combinations of inputs that can be purchased for a given total cost.

Isocost Line

A visual depiction in economics indicating every potential mix of inputs that have an identical overall cost.

Cost Of Capital

The total cost of funds used for financing a business, which may include debt and equity financing costs.