Barton's Creek has a new product that they are considering launching. The machinery required to produce the product costs $350,000. Barton's is expecting the new product to produce profits (EBT) of $150,000 each year for the next five years.

Barton has two choices of how to record depreciation on the machinery. Choice A is to record $200,000 depreciation in year 1, $100,000 in year 2 and $50,000 in year 3. Choice B is to record $70,000 depreciation in each of the five years of the project.

Assuming a tax rate of 25% and a required return of 13%, which depreciation choice will produce the higher NPV? Which depreciation choice will require a larger capital gains tax if the machinery is sold at the end of year 5 for $25,000?

- Choice A produces higher NPV; Choice B requires larger capital gains tax

- Both choices produce the same NPV; Choice B requires larger capital gains tax

- Choice A produces higher NPV; Both choices require the same capital gains tax

- Choice B produces higher NPV; Both choices require the same capital gains tax