Question

Wendy's boss wants to use straight-line depreciation for the new expansion project because he said it will give higher net income in earlier years and give him a larger bonus. The project will last 4 years and requires $600,000 of equipment. The company could use either 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 33.33%, 44.45%, 14.81%, and 7.41%. The project cost of capital is 9%, and its tax rate is 45%.

What would the depreciation expense be each year under each method?

Year |
Scenario 1 (Straight Line) |
Scenario 2 (MACRS) |

1 | $ | $ |

2 | ||

3 | ||

4 |

Which depreciation method would produce the higher NPV?

How much higher would it be? Round your answer to the nearest
dollar.

$

Answer #1

Wendy's boss wants to use straight-line depreciation for the new
expansion project because he said it will give higher net income in
earlier years and give him a larger bonus. The project will last 4
years and requires $600,000 of equipment. The company could use
either 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...

Wendy's boss wants to use straight-line depreciation for the new
expansion project because he said it will give higher net income in
earlier years and give him a larger bonus. The project will last 4
years and requires $600,000 of equipment. The company could use
either 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...

Wendy's boss wants to use straight-line depreciation for the new
expansion project because he said it will give higher net income in
earlier years and give him a larger bonus. The project will last 4
years and requires $800,000 of equipment. The company could use
either 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...

Wendy's boss wants to use straight-line depreciation for the new
expansion project because he said it will give higher net income in
earlier years and give him a larger bonus. The project will last 4
years and requires $1,680,000 of equipment. The company could use
either 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...

Wendy's boss wants to use straight-line depreciation for the new
expansion project because he said it will give higher net income in
earlier years and give him a larger bonus. The project will last 4
years and requires $1,760,000 of equipment. The company could use
either 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 Methods
Wendy's boss wants to use straight-line depreciation for the new
expansion project because he said it will give higher net income in
earlier years and give him a larger bonus. The project will last 4
years and requires $700,000 of equipment. The company could use
either 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...

Wendy's boss wants to use straight-line depreciation for the new
expansion project because he said it will give higher net income in
earlier years and give him a larger bonus. The project will last 4
years and requires $1,750,000 of equipment. The company could use
either 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 Methods
Wendy's boss wants to use straight-line depreciation for the new
expansion project because he said it will give higher net income in
earlier years and give him a larger bonus. The project will last 4
years and requires $1,750,000 of equipment. The company could use
either 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...

Depreciation Methods
Wendy's boss wants to use straight-line depreciation for the new
expansion project because he said it will give higher net income in
earlier years and give him a larger bonus. The project will last 4
years and requires $1,800,000 of equipment. The company could use
either 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...

Depreciation Methods
Wendy's boss wants to use straight-line depreciation for the new
expansion project because he said it will give higher net income in
earlier years and give him a larger bonus. The project will last 4
years and requires $1,620,000 of equipment. The company could use
either 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...

ADVERTISEMENT

Get Answers For Free

Most questions answered within 1 hours.

ADVERTISEMENT

asked 2 minutes ago

asked 16 minutes ago

asked 29 minutes ago

asked 31 minutes ago

asked 36 minutes ago

asked 48 minutes ago

asked 57 minutes ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago