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We've emphasized that the firm should pay attention only to cash flows when assessing the net present

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We've emphasized that the firm should pay attention only to cash flows when assessing the net present value of proposed projects. Depreciation is a noncash expense. Why then does it matter whether we assume straight-line depreciation or declining balance CCA depreciation when we assess project NPV?

Net Present Value
What is NPV? The net present value is an important tool for capital budgeting decision to assess that an investment in a project is worthwhile or not? The net present value of a project is calculated before taking up the investment decision at...
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While depreciation is a noncash expense it still has an impact on net cash flow becau...View the full answer


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Related Book For  answer-question
Fundamentals Of Corporate Finance

Fundamentals Of Corporate Finance

ISBN: 9781259087585

6th Canadian Edition

Authors: Stephen Ross, Randolph Westerfield, Bradford Jordan, Gordon Roberts

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In accounting terms, depreciation is defined as the reduction of the recorded cost of a fixed asset in a systematic manner until the value of the asset becomes zero or negligible. An example of fixed assets are buildings, furniture, office equipment, machinery, etc. The land is the only exception that cannot be depreciated as the value of land appreciates with time. Depreciation allows a portion of the cost of a fixed asset to be the revenue generated by the fixed asset. This is mandatory under the matching principle as revenues are recorded with their associated expenses in the accounting period when the asset is in use. This helps in getting a complete picture of the revenue

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