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Wendy's boss wants to use straight-line depreciation for the new expansion project because he said it will give higher net income in earlier years and give him a larger bonus. The project will last 4 years and requires $900,000 of equipment. The company could use either 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 33.33%, 44.45%, 14.81%, and 7.41%. The company's WACC is 9%, and its tax rate is 50%. What would the depreciation expense be each year under each method? Year Scenario 1 (Straight Line) Scenario 2 (MACRS)
Which depreciation method would produce the higher NPV?
How much higher would it be? Round your answer to the nearest dollar.
Why might Wendy's boss prefer straight-line depreciation?
Cash Coverage, Inc. had net sales of $300,000 last year, and increased its retained earnings by $10,000 for the year after paying a dividend of $2 per share on 10,000 outstanding shares. The tax rate for the company is 40%. The company had cost of go..
Rise Against Corporation is comparing two different capital structures: an all-equity plan (Plan I) and a levered plan (Plan II). Under Plan I, the company would have 200,000 shares of stock outstanding. Under Plan II, there would be 150,000 shares o..
Consider two stocks, Stock D, with an expected return of 21 percent and a standard deviation of 37 percent, and Stock I, an international company, with an expected return of 7 percent and a standard deviation of 17 percent. The correlation between th..
Since interest on debt is tax deductible and dividend on stock is not. Companies are financially better off issuing as much debt as possible. The optimal capital structure is the same for all the companies in the each industry.
Juan, married and a father of 4 is 45 and expects to work until 65. he earns 70,000$ a year and expects an increase annually of 5%. Juan expects inflation to be 4% over his working life. His personal consumption is earl to 10% after tax earning and h..
Calculate the future value of the single cash flow deposited today at the end of the deposit period if the interest is compounded annually at the rate specified.
Hiring physically challenged people to clean bowling shoes will save BowlingBackOffice, Inc (BBO) $3,000 per year for the next 5 years but will require a $10,000 investment to retrofit the work area and review operating procedures to ensure that the ..
You just won the florida lottery. You have the choice of 24000000 today or a 20 year annuity 2280000, with the first payment coming one year from today. If you want an annual return of 7.5 percent, should you take the lump sum or the annuity? Explain..
Market value will be 60 millions. During the year company will raise and invest 20 million in new projects. The firm presents value capital structure described below. No short -term debt. Debt: 30,000,000 Common equity: 30,000,000 and Total equity: 6..
You are to write a 3-5 page summary to me as VP for Production, stating your observations of XYZ Manufacturing. In this memo, you will include: Make-Buy decisions on widgets and support your decision with made-up numbers.
You are considering your retirement, and would like to have accumulated $1,839,829 by the time you retire in 27 years. If you anticipate that your average compounded rate of return over the 27 years until retirement will be 12%, how much will you nee..
Calculate and interpret the volume and management variances on the cost side.
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