DEPRECIATION METHODS

Charlene is evaluating a capital budgeting project that should last for $4$ years. The project requires $$175,000$ 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 $10\%,$ and its tax rate is $35\%.$

a$.$ What would the depreciation expense be each year under each method? Round your answers to the nearest cent.

b$.$ Which depreciation method would produce the higher NPV$?$

How much higher would the NPV be under the preferred method? Round your answer to two decimal places. Do not round your intermediate calculations.

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