Please, please, please, help!!!
My test is tomorrow. I need to understand this question, otherwise, I will not sleep today.
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.
An event that would decrease the internal rate of return would have to either decrease or extend the cash flows from, or increase the initial cost of, the investment. Answer A is correct because a decrease in tax credits would increase the initial cost of the investment.
Using accelerated depreciation would result in less tax expense in the earlier years and, therefore, increase the rate of return.
I think that An event that would decrease the internal rate of return would have to either increase the cash flows from, or decrease the initial cost of, the investment.
Because the formula is IRR=Init Investment/Annual Cash flows. and I think that answer D is correct.
Why am I wrong????
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