Question

**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 applicable MACRS depreciation rates are 33.33%, 44.45%, 14.81%, and 7.41%. The project cost of capital is 8%, and its tax rate is 30%.

a) What would the depreciation expense be each year under each method? Enter your answers as positive values. Do not round intermediate calculations. Round your answers to the nearest dollar.

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

1 | $ | $ |

2 | $ | $ |

3 | $ | $ |

4 | $ | $ |

b) Which depreciation method would produce the higher NPV, and how much higher would it be? Do not round intermediate calculations. Round your answer to the nearest cent.

The NPV under -Select-(Scenario 1 OR Scenario 2) will be higher by $_____________ .

Answer #1

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...

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...

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 $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 $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 $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...

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