Question

Charlene is evaluating a capital budgeting project that should last for 4 years. The project requires $700,000 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 14%, and its tax rate is 40%.

- 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-Line or MACRS

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

$

Answer #1

Charlene is evaluating a capital budgeting project that should
last for 4 years. The project requires $875,000 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
12%, and its tax...

Charlene is evaluating a capital budgeting project that should
last for 4 years. The project requires $850,000 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
11%, and its tax...

Charlene is evaluating a capital budgeting project that should
last for 4 years. The project requires $950,000 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
11%, and its tax...

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
13%, and...

DEPRECIATION METHODS
Charlene is evaluating a capital budgeting project that should
last for 4 years. The project requires $750,000 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
11%, and...

DEPRECIATION METHODS
Charlene is evaluating a capital budgeting project that should
last for 4 years. The project requires $625,000 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
14%, and...

DEPRECIATION METHODS
Charlene is evaluating a capital budgeting project that should
last for 4 years. The project requires $850,000 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
14%, and...

Kristin is evaluating a capital budgeting project that should
last for 4 years. The project requires $725,000 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
9%, and its tax...

Charlene is evaluating a capital budgeting project that should
last for 4 years. The project requires $125,000 of equipment and is
eligible for 100% bonus depreciation. She is unsure whether
immediately expensing the equipment or using straight-line
depreciation is better for the analysis. 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 company's WACC is 10%, and its tax rate
is 20%.
What would...

Charlene is evaluating a capital budgeting project that should
last for 4 years. The project requires $300,000 of equipment and is
eligible for 100% bonus depreciation. She is unsure whether
immediately expensing the equipment or using straight-line
depreciation is better for the analysis. 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 company's WACC is 9%, and its tax rate
is 20%.
What would...

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