National Manufacturing Company is considering buying some new equipment that would allow for increased sales of its product. The incremental impact of the proposed $400,000 investment is shown below using straight-line depreciation and an expected useful life of four years for the equipment. The company has a minimum desired rate of return of 14%.

Revenues $500,000

Nondepreciating expenses $300,000

Depreciation $100,000

Total expenses $400,000

Taxable income $100,000

Income tax (40%) $40,000

Net income $60,000

Question 13: Using the DDB depreciation and a three-year recovery period to compute the tax savings from depreciation results in _____.

Question 13 options:

a higher NPV, and is still positive to make the investment desirable

a lower NPV that would suggest that the investment should be made

an even lower NPV of the investment than resulted using the straight-line method

the same NPV as was computed when using straight-line depreciation