Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

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

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 $1,720,000 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 25%.
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.
YearScenario 1
(Straight Line)Scenario 2
(MACRS)1$$2$$3$$4$$
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

Entrepreneurial Finance

Authors: Philip J. Adelman; Alan M. Marks

6th edition

9780133099096, 133140512, 133099091, 978-0133140514

More Books

Students also viewed these Finance questions

Question

c. Why does your answer to part b differ from that to part a?

Answered: 1 week ago