Year 0	Year 1	Year 2	Year 3
Revenues		500,000	500,000	500,000
- Cost of Goods Sold		-150,000	-150,000	-150,000
- Depreciation		-100,000	-100,000	-100,000
= EBIT		250,000	250,000	250,000
- Taxes (35%)		-87,500	-87,500	-87,500
= Incremental Net Income		162,500	162,500	162,500
+ Depreciation		+100,000	+100,000	+100,000
- Change in NWC		-20,000	-20,000	-20,000
- Capital Expenditures	-300,000
= Incremental Free Cash Flow	-300,000	242,500	242,500	242,500

Visby Rides, a livery car company, is considering buying some new luxury cars. After extensive research, they come up with the above estimates of free cash flow from this project. The depreciation schedule shown is for three-year, straight-line depreciation. By how much would the net present value (NPV) of this project be increased, if the cars were depreciated by the MACRS schedule shown below given that the cost of capital is 10%?

	Year 0	Year 1	Year 2	Year 3
MACRS Depreciation Rate	33.33%	44.45%	14.81%	7.41%

[Hint: If the cars were depreciated by the MACRS schedule, then the pro forma statement would look like the following:

	Year 0	Year 1	Year 2	Year 3
Revenues		500,000	500,000	500,000
- Cost of Goods Sold		-150,000	-150,000	-150,000
- Depreciation	=-300,000x33.33%	=-300,000x44.45%	=-300,000x14.81%	=-300,000x7.41%
= EBIT	=-300,000x33.33%	=500,000-150,000-300,000x44.45%	=500,000-150,000-300,000x14.81%	=500,000-150,000-300,000x7.41%
- Taxes (35%)	=-EBITx35%	=-EBITx35%	=-EBITx35%	=-EBITx35%
= Incremental Net Income	=EBIT-Taxes	=EBIT-Taxes	=EBIT-Taxes	=EBIT-Taxes
+ Depreciation	+300,000x33.33%	+300,000x44.45%	+300,000x14.81%	+300,000x7.41%
- Change in NWC		-20,000	-20,000	-20,000
- Capital Expenditures	-300,000
= Incremental Free Cash Flow	=Incremental Net Income + Depreciation - Change in NWC -Capital Expenditures	=Incremental Net Income + Depreciation - Change in NWC -Capital Expenditures	=Incremental Net Income + Depreciation - Change in NWC -Capital Expenditures	=Incremental Net Income + Depreciation - Change in NWC -Capital Expenditures

The answer is then the difference in NPV calculated based on the two depreciation schedules.]

Group of answer choices

$7266

$9082

$10,898

$22,705