When computing the net present value of a piece of equipment, depreciation on the equipment should...
When computing the net present value of a piece of equipment, depreciation on the equipment should be
a. subtracted from income to get cash flows
b. subtracted net of tax from income to get cash flows
c. added to income to get cash flows
d. added to net income net of tax to get cash flows
Homework Answers
When computing the net present value of a piece of equipment, depreciation on the equipment should be added to net income net of tax to get cash flows.
Correct option is (d)
Cash flows = Net income after tax + Depreciation expense
While calculating net income, depreciation has already been subtracted since it is an expense.
Depreciation on the equipment is added back to the net income since depreciation is a non cash expense, it does not involve any cash outflow.
Kindly comment if you need further assistance. Thanks
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When computing the net present value of a piece of equipment,
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