If depreciation expense is taken over five years rather than three years, all things equal,
A)net present value will go down.
B)depreciation has no effect on net present value.
C)net present value will go up.
D)the answer depends on the company's marginal tax rate.

Question

Quizplus · Accepted Answer

If depreciation expense is taken over five years instead of three, the total amount of tax savings will be spread out over a longer period of time, resulting in a smaller tax shield each year. As a result, the net present value of the investment will decrease because the cash flows will be reduced.

If Depreciation Expense Is Taken Over Five Years Rather Than