a. 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 Scenario 2 (Straight-Line) (Bonus Depreciation) 2 3 4 b. Which depreciation method would produce the higher NPV? -Select- How much higher would the NPV be under the preferred method? Do not round intermediate calculations. Round your answer to the nearest dollar.
a. 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 Scenario 2 (Straight-Line) (Bonus Depreciation) 2 3 4 b. Which depreciation method would produce the higher NPV? -Select- How much higher would the NPV be under the preferred method? Do not round intermediate calculations. Round your answer to the nearest dollar.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Please see image for question.
Options for B are; Straight-Line or Bonus
Transcribed Image Text:6. Problem 12.06 (Depreciation Methods)
国
еВook
Charlene is evaluating a capital budgeting project that should last for 4 years. The project requires $650,000 of equipment and is eligible for 100% bonus depreciation. She is unsure whether immediately expensing the equipment or using straight-line
depreciation is better for the analysis. Under straight-line depreciation, the cost of the equipment would be depreciated evenly over its 4-year life (ignore the half-year convention for the straight-line method). The company's WACC is 11%, and its tax rate is
20%.
a. What would the depreciation expense be each year under each method? Enter your answers as positive values. Round your answers to the nearest dollar.
Year
Scenario 1
Scenario 2
(Straight-Line)
(Bonus Depreciation)
24
1
2
2$
2$
3
$
$
4
$
2$
b. Which depreciation method would produce the higher NPV?
-Select-
How much higher would the NPV be under the preferred method? Do not round intermediate calculations. Round your answer to the nearest dollar.
$
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