wendy is evaluating a capital budgeting project that should last for 4yrs.the pr
ID: 2344182 • Letter: W
Question
wendy is evaluating a capital budgeting project that should last for 4yrs.the project requires $800,000.00 of equipmentshe is unsure what depreciation method to use in her analyses, straight-line or the 3yrs macrs accelerated methods. under straight-line depreciation,the cos of equipment would be depreciated over its 4yr life . The applicable MACRS depreciation rates are 33%, 45%, 15%, and 7%, as discussed. The company's WACC is 10% and its tax rate is 40%.What would the depreciation expense be each year under each method?
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Explanation / Answer
Under straight-line method Annual depreciation expense= $800,000.00/4 =$200,000.00 Under 3yrs macrs accelerated methods depreciation expense in Year 1 =33%* $800,000.00=$264,000 depreciation expense in Year 2 =45%* $800,000.00= $360,000 depreciation expense in Year 3 =15%* $800,000.00= $120,000 depreciation expense in Year 4 =7%* $800,000.00= $56,000
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