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!作者: kingstongal 时间: 2011-7-13 13:11
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.作者: luda002 时间: 2011-7-13 13:11
On ROE, use of debt increases D and reduces E, so you have a smaller equity, hence increasing ROE.作者: spreads 时间: 2011-7-13 13:11
You're right about the offsetting effect, but ROE will increase, because your leverage increases in DuPont as well, the A/E part.
