A company used the net-present-value method to analyze an investment and found the investment to be very attractive. If the firm used straight-line depreciation and changes to the Modified Accelerated Cost Recovery System (MACRS), the investment's net present value will:

Question

Quizplus · Accepted Answer

Switching from straight-line depreciation to MACRS allows for more accelerated depreciation in the early years of an asset's life. This results in higher tax deductions early on, which increases the present value of tax shields and, consequently, the investment's net present value.

A Company Used the Net-Present-Value Method to Analyze an Investment