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Celsius Corp. is conducting a capital budgeting analysis to decide whether to invest in a new project which has an expected life of 5 years.
Celsius Corp. is conducting a capital budgeting analysis to decide whether to invest in a new project which has an expected life of 5 years. The following information is available:
- The installed cost of the new equipment is $360,000. Installation will cost an additional $40,000 The equipment will be depreciated using 5-year MACRS depreciation over the 5-year life of the project.
- An initial NOWC investment equal to 10 percent of year 1 sales will also be required.
- The equipment is expected to have a salvage value of $80,000 at the end of the project's life.
- Forecasted sales in year 1 is $600,000 with a gross margin (excluding depreciation) of 40%. Sales is expected to increase 5% per year over the 5-year life of the project.
- Additional NOWC investments equal to 10 percent of the expected increase in sales will also be required each year.
- Interest expense from a loan used to finance the project will result in annual interest payments of $28,000 each year over the 5-year life of the project.
- Celsius has a 21% corporate tax rate.
What is the depreciation expense in year 3 for the project?
Select one:
a. $58,960
b. $65,120
c. $76,800
d. $92,500
e. none of the above
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