1. 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 12%, and its tax rate is 30%.

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? -Straight-Line

-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. $

2.SCENARIO ANALYSIS

Huang Industries is considering a proposed project whose estimated NPV is $12 million. This estimate assumes that economic conditions will be "average." However, the CFO realizes that conditions could be better or worse, so she performed a scenario analysis and obtained these results:

Economic Scenario	Probability of Outcome	NPV
Recession	0.05	($42 million)
Below average	0.20	(12 million)
Average	0.50	12 million
Above average	0.20	18 million
Boom	0.05	34 million

Calculate the project's expected NPV, standard deviation, and coefficient of variation. Round your answers to two decimal places. Enter your answers for the project's expected NPV and standard deviation in millions. For example, an answer of $13,000,000 should be entered as 13.

E(NPV)	= $ million
NPV	= $ million
CV	=