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# Depreciation methods Charlene is evaluating a capital budgeting project that should last for 4 years The project requires \$675000 of equipment She is unsure what depreciation method to use in her

Depreciation methods

Charlene is evaluating a capital budgeting project that should last for 4 years. The project requires \$675,000 of equipment. She is unsure what depreciation method to use in her analysis, straight-line or the 3-year MACRS accelerated method. Under straight-line depreciation, the cost of the equipment would be depreciated evenly over its 4-year life (ignore the half-year convention for the straight-line method). The applicable MACRS depreciation rates are 33%, 45%, 15%, and 7%. The company's WACC is 10%, and its tax rate is 35%.

What would the depreciation expense be each year under each method? Round your answers to the nearest cent.

 Year Scenario 1(Straight-Line) Scenario 2(MACRS) 1 \$ \$ 2 \$ \$ 3 \$ \$ 4 \$ \$

Which depreciation method would produce the higher NPV?
-Select-Straight-LineMACRSItem 9

How much higher would the NPV be under the preferred method? Round your answer to two decimal places. Do not round your intermediate calculations.
\$

Apr 22 2020 View more View Less