A reduction 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 increases by the same amount.
D)none of the above

Question

Quizplus · Accepted Answer

A reduction in the rate of depreciation means that assets lose their value more slowly over time. This implies that the future cash flows from these assets will be higher than previously expected, because the assets will be useful and productive for a longer period. When calculating the discounted present value of expected profits, higher future cash flows result in a higher present value, assuming the discount rate remains unchanged.

A Reduction in the Rate of Depreciation Will Cause the Discounted