Charlene is evaluating a capital budgeting project that should last for 4 years. The project requires $425,000 of equipment and is eligible for 100% bonus
Charlene is evaluating a capital budgeting project that should last for 4 years. The project requires $425,000 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 25%.
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 $
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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