5. Problem 12.06 (Depreciation Methods)

Charlene is evaluating a capital budgeting project that should last for 4 years. The project requires $125,000 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 11%, and its tax rate is 30%.

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	$	$

3. Which depreciation method would produce the higher NPV? Straight-Line OR 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. $