Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Depreciation Methods Wendy's boss wants to use straight-line depreciation for the new expansion project because he said it will give higher net income in earlier

Depreciation Methods

Wendy's boss wants to use straight-line depreciation for the new expansion project because he said it will give higher net income in earlier years and give him a larger bonus. The project will last 4 years and requires $1,690,000 of equipment. The company could use either 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 33.33%, 44.45%, 14.81%, and 7.41%. The project cost of capital is 10%, and its tax rate is 35%.

  1. What would the depreciation expense be each year under each method? Enter your answers as positive values. Do not round intermediate calculations. Round your answers to the nearest dollar.

    Year Scenario 1 (Straight Line) Scenario 2 (MACRS)
    1 $ $
    2 $ $
    3 $ $
    4 $ $
  2. Which depreciation method would produce the higher NPV, and how much higher would it be? Do not round intermediate calculations. Round your answer to the nearest cent.

    The NPV under -Select-Scenario 1Scenario 2Item 9 will be higher by $ .

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Finance Plain And Simple

Authors: Sebastian Nokes

1st Edition

0273731297, 978-0273731290

More Books

Students also viewed these Finance questions

Question

How does a molecule differ from an atom?

Answered: 1 week ago