1. A company faces a choice between using straight line or accelerated depreciation in preparing the capital budget for a major expansion project. The project will last four years and require a $1.7 million investment in new equipment. Under the straight-line method, this expense would be spread evenly over the four-year life of the project. Applicable MACRS depreciation rates are 33.33%, 44.45%, 14.8%, and 7.41%. The companys WACC is 10% and the tax rate is 40%.

1. What is the depreciation expense for each year under the two methods?

2. What is the NPV of the project under each method?

3. How would managers prefer to account for expenses if their bonus plan uses EPS to calculate bonus payouts?