Charlene is evaluating a capital budgeting project thatshould last for 4 years. The project requires $475,000 ofequipment. She is unsure what depreciation method touse in her analysis, straight-line or the 3-year MACRSaccelerated method. Under straight-line depreciation,the cost of the equipment would be depreciated evenlyover its 4-year life (ignore the half-year convention forthe straight-line method). The applicable MACRSdepreciation rates are 33%, 45%, 15%, and 7%. Thecompany's WACC is 11 %, and its tax rate is 30%.What would the depreciation expense be each yearunder each method? Round your answers to thenearest cent. Year Scenario 1 (Straight - Line) Scenario2 (MACRS) 1 $ $ 234 Which depreciation methodwould produce the higher NPV? -Select- How muchhigher would the NPV be under the preferred method?Round your answer to two decimal places. Do notround your intermediate calculations. $

Step 1: Calculate the depreciation expense for each year under the straight-line method:The…

Answered: Charlene is evaluating a capital…

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter19: Capital Investment

Section: Chapter Questions

Problem 28P: Friedman Company is considering installing a new IT system. The cost of the new system is estimated...

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Kristin is evaluating a capital budgeting project that should last for 4 years. The project requires $850,000 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 9%, 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? How much higher would the NPV be under the preferred method? Round your answer to the nearest cent
Charlene is evaluating a capital budgeting project that shouldlast for 4 years. The project requires $800,000 of equipment. She is unsure what depreciationmethod 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 evenlyover its 4-year life (ignore the half-year convention for the straight-line method). The applicableMACRS depreciation rates are 33%, 45%, 15%, and 7%, as discussed in Appendix 12A.The company’s WACC is 8%, and its tax rate is 35%.a. What would the depreciation expense be each year under each method?b. Which depreciation method would produce the higher NPV, and how much higherwould it be?
Kristin is evaluating a capital budgeting project that should last 4 years. The project requires P800,000 of equipment. She is unsure what depreciation method to use in her analysis, straight-line or the 3-year MACRS (Modified Accelerated Cost Recovery System Method) method. Under straight-line depreciation, the cost of the equipment would be depreciated evenly over its 4-year life. The applicable MACRS depreciation rates per year are 33%, 45%, 15%, and 7% form year 1 to 4, respectively. The company’s WACC is 10%, and its tax rate is 40%. a. What would the depreciation expense be each year under each method? b. Which depreciation method would produce the higher NPV, and how much higher would it be?
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Charlene is evaluating a capital budgeting project that should last for 4 years. The project requires $450,000 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 8%, and its tax rate is 30%. 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 0 1 2 3 4 ft Scenario 1 (Straight-Line) $ $ $ $ $ 0 112500 112500 112500 112500 Scenario 2 (Bonus Depreciation) $ 450000 $ $ 0 0 0 0 b. Which depreciation method would produce the higher NPV? Bonus Depreciation V How much higher would the NPV be under the preferred method? Do not round intermediate calculations. Round your…
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Charlene is evaluating a capital budgeting project that should last for 4 years. The project requires $325,000 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 9%, and its tax rate is 30%. 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. 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. Year Scenario 1 (Straight-Line) Scenario 2 (Bonus Depreciation) +A +A +A +A +A 0 1 2 3 4
Mountain Frost is considering a new project with an initial cost of $205,000. The equipment will be depreciated on a straight-line basis to a zero book value over the four-year life of the project. The projected net income for each year is $20,000, $20,900, $24,600, and $16,900, respectively. What is the average accounting return? Please make sure its correct

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