Question #19
Reading: Reading 14 Financial Statement Modeling
PDF File: Reading 14 Financial Statement Modeling.pdf
Page: 11
Status: Unattempted
Correct Answer: B
Question
Rapid Tech Inc has mistakenly overestimated the useful lives of their PP&E: it has become apparent that due to rapid changes in technology, a significant part of Rapid's PP&E will need to be replaced sooner than anticipated. Rapid's CFO has indicated that the new depreciation schedules will take into account the shortened lives of the PP&E that will be acquired as replacement. The most likely impact on Rapid's future return on invested capital (ROI
Answer Choices:
A. decrease
B. increase
C. remain the same
Explanation
Increases in PP&E will increase invested capital, while higher depreciation expense will
reduce earnings. Both factors will reduce the return on invested capital.