A decrease in the rate of depreciation will cause the discounted present value of expected profits to:
A) decrease.
B) increase.
C) remain unchanged if the real interest rate decreases by the same amount.
D) All of the above.
E) None of the above.

Question

Quizplus · Accepted Answer

A decrease in the rate of depreciation means that the assets will have a longer useful life, resulting in higher expected profits in the future. This, in turn, will increase the discounted present value of expected profits. Therefore, the correct answer is B.

A Decrease in the Rate of Depreciation Will Cause the Discounted