Question
DEPRECIATION METHODS Charlene is evaluating a capital budgeting project that should last for 4 years. The project requires $900,000 of equipment. She is unsure what
DEPRECIATION METHODS Charlene is evaluating a capital budgeting project that should last for 4 years. The project requires $900,000 of equipment. She is unsure what depreciation method to use in her analysis, straight-line or the 3-year MACRS accelerated method. 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 applicable MACRS depreciation rates are 33%, 45%, 15%, and 7%. The company's WACC is 11%, and its tax rate is 30%.
What would the depreciation expense be each year under each method? Round your answers to the nearest cent.
Year | Scenario 1 (straight line) | Scenario 2 (MACRS) |
1 | $ | $ |
2 | ||
3 | ||
4 |
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