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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
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 10%, and its tax rate is 20%.
- 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 $ $ - Which depreciation method would produce the higher NPV? -Select-Straight-Line? 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. $ ----------?
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