ENR 5,000 6,000 4,000 4,000 3,000 ______________________________________________
ID: 2620917 • Letter: E
Question
ENR 5,000 6,000 4,000 4,000 3,000
______________________________________________
time 0 1 2 3 4 5
Price of Machine = 20,000 r > 0 ITC = 0
Given the information in the table above, suppose the Government increases the depreciation period on this asset from 3 to 5 years, which of the following is true?
a. ENR will increase in years 1 – 5, and the expected rate of profit on this investment will increase.
b. ENR will decrease in years 1 – 5, and the expected rate of profit on this investment will decrease.
c. the present value of the expected net revenue stream will increase.
d. ENR will increase in years 1-3 and decrease in years 4 & 5.
e. ENR will increase in years 4 & 5 and decrease in years 1 thru 3.
Explanation / Answer
Assuming Change in Depreciation method took Place in Year 0,
b. ENR will decrease in years 1 – 5, and the expected rate of profit on this investment will decrease
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