The capital budgeting manager for XYZ Corporation, a very profitable high techno

Question

The capital budgeting manager for XYZ Corporation, a very profitable high technology company, completed her analysis of Project A assuming 5-year depreciation. Her accountant reviews the analysis and changes the depreciation method to 3-year depreciation. This change will
Answer a. increase the present value of the NCFs. b. decrease the present value of the NCFs. c. have no effect on the NCFs because depreciation is a non-cash expense. d. only change the NCFs if the useful life of the depreciable asset is greater than 5 years.

Explanation / Answer

Option C is correct. Because depreciation is a non-cash expense. We calculate the depreciation for determine the Value of asset at each year. we do not put any cash payment for that.Therefore the Present value of Net Cash Flows have no effect.

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