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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

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