Which of the following events would decrease the internal rate of return of a proposed asset purchase?
A.
Decrease tax credits on the asset
B.
Decrease related working capital requirements
C.
Shorten the payback period
D.
Use accelerated instead of straight-line depreciation
The correct answer is A.
Does anyone know about the “C. Shorten the payback period”? What I think is reduced payback period should increase the PV factor, because if you want to reduce payback period, you need to increase future cash flow, so the PV factor should increase. But the answer explains “A reduced payback period correlates to a decrease in the PV factor. I don't understand…..
Thank you.