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Wendys boss wants to use stalght-line depreciation for the new expansian project because he said it will give higher net income in earlier years and
Wendys boss wants to use stalght-line depreciation for the new expansian 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 $1,780,000 of equipment. The company could wse elther straight-ine or the 3-year Macas occelerated method, Under straight-line depreciation, the cost of the equipment would be depreciated eveniy ever its 4-year afe. (Ignore the half-year convention for the straight-line method.) The applicatie Macks depreciation rates are 33.33%,44.45%,14.81%, and 7.41%. The project cost of capital is 9%, and iss tax rate is 45%. a, What would the depreciaticn expense be each year under each method? Enter your answars as positive values, Do not round intermediate calculations. Pound your answers to the nearest dollar. b. Which deprecation method would produce the higher NPV, and how much higher would it be? Do not rowind intermedate caloulations. Round your answer to the nearest cent. The Noy under will be higher by 1
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