Charlene is evaluating a capital budgeting project that should last for 4 years. The project requires $950,000 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 12%, and its tax rate is 30%. 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). 0 $ $ $ $ $ $ $ $ 4 $ S 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. $ 1 2 3

Charlene is evaluating a capital budgeting project that should last for 4 years. The project requires $950,000 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 12%, and its tax rate is 30%. 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). 0 $ $ $ $ $ $ $ $ 4 $ S 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. $ 1 2 3

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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