Question

5.  Problem 12.06 (Depreciation Methods) Charlene is evaluating a capital budgeting project that should last for 4 years. The project requires $125,000 of equipment and is eligible for 100% bonus depreciation. She is unsure whether immediately expensing the equipment or using straight-line depreciation is better for the analysis. 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 company's WACC is 11%, and its tax rate is 30%. What would the depreciation expense be each year under each method? Enter your answers as positive values. Round your answers to the nearest dollar. Year Scenario 1 (Straight-Line) Scenario 2 (Bonus Depreciation) 0 $   $   1 $   $   2 $   $   3 $   $   4 $   $   Which depreciation method would produce the higher NPV? Straight-Line OR Bonus Depreciation How much higher would the NPV be under the preferred method? Do not round intermediate calculations. Round your answer to the nearest dollar. $

Answer 1