Question

Charlene is evaluating a capital budgeting project that should last for 4 years. The project requires...

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%.

  1. What would the depreciation expense be each year under each method? Enter your answers as positive values. Round your answers to the nearest dollar.
    Year Scenario 1
    (Straight-Line)
    Scenario 2
    (Bonus Depreciation)
    0 $   $  
    1 $   $  
    2 $   $  
    3 $   $  
    4 $   $  

  2. Which depreciation method would produce the higher NPV?
    -Select- Straight-Line Bonus Depreciation
    How much higher would the NPV be under the preferred method? Do not round intermediate calculations. Round your answer to the nearest dollar.
    $  

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