Corporate finance Qs

increase, finance, change, income, reduce

Why is accelerated depreciation increase NPV, compared to straight line?

Why is use of debt reduce net income but increase ROE?

Why is use of debt increase the rate of change in ROE?

Thanks!

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发表于 2011-7-13 13:11 | 只看该作者

accelerated depreciation has a higher depreciation than straight line. so effectively you pay less taxes or in other words have more cash flows. leads to increase in NPV

Use of debt increases "required" ROE, as the leverage increases, the equity investors want to be compensated for the leverage.

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