Question

9. Using straight line depreciation instead of accelerated depreciation over the same depreciable life will _________...

9. Using straight line depreciation instead of accelerated depreciation over the same depreciable life will _________ the Net Present Value of a capital budgeting project

a. increase

b. decrease

c. have no effect upon

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Homework Answers

Answer #1

Correct Answer is option B
NPV will decrease if using straight line depreciation over Acceletaed depreciation.
In straight line depreciation, depreciation amount equal over the life is same.
But in Accelerated depreciation, the depreciation amount in near term is more than the far terms.
In Accelerated depreciation the depreciation occur sooner, and the company wil get the benefit of depreciation tax shield.
Therefore, PV of near cashflow terms is greater than PV of more distant cash flow.
NPV is greater in Accelearated depreciation method as compared to straight line method.

I hope this clear your doubt.

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