Question

5. Problem 12.06 (Depreciation Methods) eBook Charlene is evaluating a capital budgeting project that should last for 4 years. The project requires $975,000 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 20%. a. 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) जी ta जी ONM जी ta ta ta जी जी ta b. Which depreciation method would produce the higher NPV? -Select- How much higher would the NPV be under the preferred method? Do not round intermediate calculations. Round your answer to the nearest dollar.

Answer 1

a.

Year	Straight Line	Bonus Depreciation
0
1	2,29,088.00	9,16,353.00
2	2,15,309.00	-
3	2,02,358.00	-
4	1,90,186.00	-

b. Straight Line

c. Straight Line - Higher by $ 79,412.00