Maurice Tutor

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    Argosy University/ Phoniex University/
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Category > Accounting Posted 16 Aug 2017 My Price 5.00

MACRS depreciation rates

DEPRECIATION METHODS Kristin is evaluating a capital budgeting project that should last 4 years. The project requires $800,000 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% as discussed in Appen- dix 12A. The company’s WACC is 10%, and its tax rate is 40%.

a.        What would the depreciation expense be each year under each method?

b.       Which depreciation method would produce the higher NPV, and how much higher would it be?

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Maurice Tutor
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Status NEW Posted 16 Aug 2017 07:08 PM My Price 5.00

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