Reference no: EM132777273

Question - Bell Corp. is considering investing in a project requiring the purchase of a depreciable asset. The initial cost of the asset is $800,000 with no expected salvage value. There are two methods of depreciating this asset that are acceptable to the IRS. The amount of depreciation expense that would be recognized by year appears below for each of the two methods:

Method	Year 1	Year 2	Year 3	Year 4
1	$200,000	$200,000	$200,000	$200,000
2	$400,000	$400,000	0	0

Assuming a tax rate of 40%, and an interest rate of 18%, which method (1 or 2) should be chosen to maximize the net present value of the asset? Indicate both your choice of method, and how much increase to net present value this method would add over the method you did not select.

a. $88,400 Choose Method 2

b. $35,360 Choose Method 1

c. $35,360 Choose Method 2

d. $88,400 Choose Method 1