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. $
Chapter11: Cash Flow Estimation And Risk Analysis
Section: Chapter Questions
Problem 5P
Related questions
Question
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
- 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.
$
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