Question

Charlene is evaluating a capital budgeting project that should last for 4 years. The project requires $900,000 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%.

1. 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)
   0	$	$
   1	$	$
   2	$	$
   3	$	$
   4	$	$

2. 
   
3. Which depreciation method would produce the higher NPV?
   -Select Straight-Line Bonus Depreciation
   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. tatement of depreciation Expenses gr Straight line Bonus Depreciation 9,00000 2.2 5000 2,25000 22. DOO 2 25000 method b. Deprecation nc & Selection of Higher alev WACC284. Straight line Bonus Depreciation Worce on 900.000 72000 72000 Prata@ 10% 3.17 (for eGarg) 1.17 PV of cash out foun) 2,2820 2,28260. Tax Saving on Dep 480oolanum 1,80,000 PULLAQ 10%. 1.17 (only for knitial) of cash dafbwo(6) 1,42650 0.000 alpua handbou- (85,590) (48240) (6-6) alew of Booms Depreciation is higher. Bonus Depreciation in selected outflow Note! WACC of 8t is considering after tax effect of 2oy. Present valere factor betur tax effect is 10%