if depreciation is an expense why is it added back to an investment s net income to 648700

1. If depreciation is an expense, why is it added back to an investment’s net income to compute the net cash flow from that investment?

2. If two investments have the same payback period, are they equally desirable? Explain.

3. The following data relate to a company’s decision on whether to purchase a machine:



Salvage value           


Annual after tax net income


The machine’s accounting rate of return, assuming the even receipt of its net cash flows during the year and use of straight line depreciation, is (a) 22%, (b) 41%, or (c) 21%.