The CFO of briggs industries is evaluating a capital budgeting project that should extend over 4years. The company's WACC is estimated to be 10% and the marginal tax rate is 21%. The project requires an investment in equipment that will cost $100,000 at the beginning of the project. For tax purposes, the CFO is unsure as to wether to use Straight-line depreciation or the 3-year MACRS accelerated method. in etheir case, depreciation expense will be recorded for each of the 4years. If the MACRS methos is used, the rates are 33.33%, 44.45%, 14.81%, and 7.41% for years 1 through 4 respectively. If the straight-line method is used, the firm can only take a half a year of depreciation in year 1 so the straight-line rate will be: year 1) 16.67% Year 2&3) 33.33% and year 4) 16.67%. A. in the space provided below, show the depreciation expense for each year under the two different methods. round each answer to the nearest dollar/Whole number: Depreciation expense per year Method Year 1 Year 2 Year 3 Year 4 MACRS Straight-line B. In the space provided below, show the tax benefit per year under each method using a tax rate of 21%. round to the nearest whole number. (=depreciation exp. x tax rate) Tax Benefit per year at tax rate = 21% Method Year 1 Year 2 Year 3 Year 4 MACRS Straight-line C. Show your work, compute the NPV of the cost of the asset after its tax benefit for each depreciation method. round to the nearest whole number. what is the NPV using MACRS, andd the Straight-line method. Which depreciation method provides the leastt after-tax cost of the asset? and by how much (what is the difference between the two NPV's?
The CFO of briggs industries is evaluating a capital budgeting project that should extend over 4years. The company's WACC is estimated to be 10% and the marginal tax rate is 21%. The project requires an investment in equipment that will cost $100,000 at the beginning of the project. For tax purposes, the CFO is unsure as to wether to use Straight-line
If the MACRS methos is used, the rates are 33.33%, 44.45%, 14.81%, and 7.41% for years 1 through 4 respectively.
If the straight-line method is used, the firm can only take a half a year of depreciation in year 1 so the straight-line rate will be: year 1) 16.67% Year 2&3) 33.33% and year 4) 16.67%.
A. in the space provided below, show the depreciation expense for each year under the two different methods. round each answer to the nearest dollar/Whole number:
Depreciation expense per year
|
Method |
Year 1 |
Year 2 |
Year 3 |
Year 4 |
|
MACRS |
||||
|
Straight-line |
B. In the space provided below, show the tax benefit per year under each method using a tax rate of 21%. round to the nearest whole number. (=depreciation exp. x tax rate)
Tax Benefit per year at tax rate = 21%
|
Method |
Year 1 |
Year 2 |
Year 3 |
Year 4 |
|
MACRS |
||||
|
Straight-line |
C. Show your work, compute the
Trending now
This is a popular solution!
Step by step
Solved in 7 steps with 7 images
