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28 Sep 2019
Kristin is evaluating a capital budgeting project that should last for 4 years. The project requires $375,000 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 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?
How much higher would the NPV be under the preferred method? Round your answer to two decimal places.
$?? _________
Kristin is evaluating a capital budgeting project that should last for 4 years. The project requires $375,000 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 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?
How much higher would the NPV be under the preferred method? Round your answer to two decimal places.
$?? _________
Nelly StrackeLv2
28 Sep 2019