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Kristin is evaluating a capital budgeting project that should last for 4 years. The project requires $850,000 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 9%, and its tax rate is 35%. 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 $    $    Which depreciation method would produce the higher NPV?   How much higher would the NPV be under the preferred method? Round your answer to the nearest cent

Kristin is evaluating a capital budgeting project that should last for 4 years. The project requires $850,000 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 9%, and its tax rate is 35%. 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 $    $    Which depreciation method would produce the higher NPV?   How much higher would the NPV be under the preferred method? Round your answer to the nearest cent

Cornerstones of Cost Management (Cornerstones Series)
Cornerstones of Cost Management (Cornerstones Series)
4th Edition
ISBN:9781305970663
Author:Don R. Hansen, Maryanne M. Mowen
Publisher:Don R. Hansen, Maryanne M. Mowen
Chapter19: Capital Investment
Section: Chapter Questions
Problem 28P: Friedman Company is considering installing a new IT system. The cost of the new system is estimated...
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Kristin is evaluating a capital budgeting project that should last for 4 years. The project requires $850,000 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 9%, 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?
     

    How much higher would the NPV be under the preferred method? Round your answer to the nearest cent
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