Question: chapter 12 4. Depreciation methods Kristin is evaluating a capital budgeting project that should last for 4 years. The project requires $400,000 of equipment. She

chapter 12

4. Depreciation methods

Kristin is evaluating a capital budgeting project that should last for 4 years. The project requires $400,000 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 13%, and its tax rate is 40%.

a. 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	=$	=$

b. How much higher would the NPV be under the preferred method? Round your answer to two decimal places. = $

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