Depreciation methods is evaluating capital budgeting project

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Reference no: EM13947150

Depreciation methods Kristin is evaluating a capital budgeting project that should last for 4 years. The project requires $675,000 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 11%, and its tax rate is 40%.

a. What would the depreciation expense be each year under each method? Round your answers to the nearest cent.

1 $ $

2 $ $

3 $ $

4 $ $

b. Which depreciation method would produce the higher NPV? How much higher would the NPV be under the preferred method? Round your answer to two decimal places.

Reference no: EM13947150

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