Question

5.  Problem 12.06

Click here to read the eBook: Analysis of an Expansion Project DEPRECIATION METHODS Charlene is evaluating a capital budgeting project that should last for 4 years. The project requires $175,000 of equipment. She is unsure what depreciation method to use in her analysis, 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%, 45%, 15%, and 7%. The company's WACC is 12%, and its tax rate is 35%. What would the depreciation expense be each year under each method? Round your answers to the nearest cent. Year Scenario 1 (Straight-Line) Scenario 2 (MACRS) 1 $ $ 2 3 4 Which depreciation method would produce the higher NPV? -Select-Straight-LineMACRSItem 9 How much higher would the NPV be under the preferred method? Round your answer to two decimal places. Do not round your intermediate calculations. $

Answer 1