Cash flows for all investment projects should be projected over the ____ of the project.
A) MACRS recovery period
B) depreciable life
C) economic life
D) smaller of depreciable or economic lives

Question

Quizplus · Accepted Answer

Cash flows for all investment projects should be projected over the economic life of the project, which is the period of time over which the project will be generating cash inflows. This is because investments should be evaluated based on their ability to generate future cash flows, and the economic life provides the best estimate of the period over which the project will be generating those cash flows. The MACRS recovery period and depreciable life are based on IRS regulations for tax purposes, and may not accurately reflect the actual economic life of the project. The smaller of depreciable or economic lives may not provide a long enough time horizon for evaluating the investment.

Cash Flows for All Investment Projects Should Be Projected Over