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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 8%, 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. $

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 8%, 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. $

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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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 8%, and its tax rate is 30%.

    1. 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 $   $  

 

  1. 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.
    $  
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