5. Problem 12.06 Click here to read the eBook: Analysis of an Expansion Project DEPRECIATION METHODS Charlene is evaluating...

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5. Problem 12.06
Click here to read the eBook: Analysis of an Expansion Project
DEPRECIATION METHODS
Charlene is evaluating a capital budgeting project that shouldlast for 4 years. The project requires $175,000 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 is12%, and its tax rate is 35%.
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. Do not round your intermediatecalculations.
$

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5. Problem 12.06Click here to read the eBook: Analysis of an Expansion ProjectDEPRECIATION METHODSCharlene is evaluating a capital budgeting project that shouldlast for 4 years. The project requires $175,000 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 is12%, and its tax rate is 35%.What would the depreciation expense be each year under eachmethod? Round your answers to the nearest cent.YearScenario 1(Straight-Line)Scenario 2(MACRS)1$$234Which depreciation method would produce the higher NPV?-Select-Straight-LineMACRSItem 9How much higher would the NPV be under the preferred method? Roundyour answer to two decimal places. Do not round your intermediatecalculations.$