Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

*PLEASE SHOW WORK IN EXCEL * Wendy's boss wants to use straight-line depreciation for the new expansion project because he said it will give higher

*PLEASE SHOW WORK IN EXCEL*

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 $1,700,000 of equipment. The company could use either straight-line or the 3 year MACRS accelerate 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% as discussed in Appendix 11A. The company's WACC is 10% and its tax rate is 40%.

A. What would the depreciation expense be each year under each method?

B. Which depreciation method would produce the higher NPV, and how much higher would it be?

C. Why might Wendy's boss prefer straight-line depreciation

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

Financial Management Core Concepts

Authors: Raymond Brooks

4th Edition

134730417, 134730410, 978-0134730417

More Books

Students also viewed these Finance questions