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Accounting Homework Help
Accounting Homework Help
Question
Problem 12-6
Depreciation methods
Kristin is evaluating a capital budgeting project that shouldlast for 4 years. The project requires $125,000 of equipment. Sheis unsure what depreciation method to use in her analysis,straight-line or the 3-year MACRS accelerated method. Understraight-line depreciation, the cost of the equipment would bedepreciated evenly over its 4-year life (ignore the half-yearconvention for the straight-line method). The applicable MACRSdepreciation rates are 33%, 45%, 15%, and 7%. The company's WACC is11%, and its tax rate is 30%.
What would the depreciation expense be each year under eachmethod? Round your answers to the nearest cent.
| Year | Scenario 1 (Straight-Line) |
Scenario 2 (MACRS) |
| 1 | $ | $ |
| 2 | $ | $ |
| 3 | $ | $ |
| 4 | $ | $ |
Which depreciation method would produce the higher NPV?
-Select-Straight-LineMACRSItem 9
How much higher would the NPV be under the preferred method? Roundyour answer to two decimal places.
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16 Sep 2017
Due Date: 16 Sep 2017
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