Kristin is evaluating a capital budgeting project that should last for 4 years. The project requires $350,000 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. The applicable MACRS depreciation rates are 33%, 45%, 15%, and 7%. The companys WACC is 10%, and its tax rate is 40%.

a) What is the NPV of the depreciation tax shield using straight-line depreciation?

b) What is the NPV of the depreciation tax shield using MACRS?

The Chang Company is considering the purchase of a new machine to replace an obsolete one. The machine being used for the operation has a book value and a market value of zero. However, the machine is in good working order and will last at least another 5 years. The proposed replacement machine will perform the operation so much more efficiently that Changs engineers estimate that it will produce after-taxcash flows (labor savings and depreciation) of $13,100 per year. The new machine will cost $39,300 delivered and installed, and its economic life is estimated to be 5 years. It has zero salvage value. The firms WACC is 11.20%, and its marginal tax rate is 40%. Calculate the NPV of the replacement analysis?