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Let's assume that a country sets the depreciation lives in a lower level (shorten depreciation lives).How...

Let's assume that a country sets the depreciation lives in a lower level (shorten depreciation lives).How can this affect the NPV and IRR of a project if all other parameters are kept unchanged

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Depreciation is non-cash expense and hence is not included in cash flow. However depreciation being tax deductible, it provides tax shield called depreciation tax shield. The depreciation tax shield provides cash savings/benefit in terms reduction in tax payments which increases cash flow.

When depreciation life is shortened , it will result in higher depreciation per year in its shortened duration which in turn will result higher tax shield and higher cash flow. Higher cash flow in initial years will result in higher NPV and higher IRR. PV of tax shield of X amount in year 1 will be higher than the PV of same X amount of tax shield in year 10.

Hence, if a country sets the depreciation lives in a lower level (shorten depreciation lives), it will result in higher NPV and higher IRR of a project keeping all other parameters unchanged.     

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