Question

Charlene is evaluating a capital budgeting project that should last for 4 years. The project requires $725,000 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 10%, and its tax rate is 35%.

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

   Year	Scenario 1 (Straight-Line)	Scenario 2 (MACRS)
   1	$	$
   2
   3
   4

2. Which depreciation method would produce the higher NPV?
   -Select-Straight-LineMACRSItem 9
   
   How much higher would the NPV be under the preferred method? Round your answer to two decimal places. Do not round your intermediate calculations.
   $

Answer 1

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ENG va adx2 pravi mandura 11:40 06 01 2020 - 578 Ho projects (Aulusaved) - Excel t ell me wiat you want to do Share X Cut Copy. Review View = = = = = = Autosum Ay O Wrap Text Merge & Center. General . . % Number Conditional Format as Cell Formatting - Table Styles - Styes X Insert Delete Format - - - File Home Insert Page Layout formules Data Calibri vu VAA Paste Format Painter B I U . . .A Clipboard Fort ACH325 - X fx ACF ACG ACH ACI 321 322 Clear Sort & Find & Filter - Select Edeng Alignment > AC ACK ACL ACM ACN ACO ACP ACQ ACR la TAX SAVING DUE TO DEPRECIATION (MACRS) YEAR PVFACTOR AT 10% 0.909091 0.826446 0.751315 0.683013 DEPRE TAX @ 35% 239250.00 83737.5 326250.00 114187. 5 108750.00 38062.5 50750.00 17762.5 PV OF TAX SAVING NM + PV OF TAX SAVING 76125.00 94369.83 28596.92 12132.03 211223.78 329 330 335 TAX SAVING DUE TO DEPRECIATION (STRAIGHT LINE) PVFACTOR PV OF YEAR DEPRE TAX @ 35% AT 10% TAX SAVING 181250.00 63437.5 0.909091 57670.45 181250.00 63437.5 0.826446 52427.69 181250.00 63437.5 0.751315 47661.53 181250.00 63437.5 0.683013 43328.67 PV OF TAX SAVING 201088.34 AS WE CAN SEE, MACRS METHOD PRODUCE HIGHER NPV AS IT HAS HIGHER TAX SAVING NPV WILL INCREASE BY = 211223.78 - 201088.34 = 10135.44 invest, EAA Mi-np-ir REPLACEMENTS HPR GMAM EAC MACRS NPV RELEVANI BETA LEVERED REPLACEMENT BOND m 336 337 338 339 340 + b RATIO PIPBP ARR OPTION TO WAI SIE ... Renpvbeta Circular References: AJ43 Ready