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Wendy is evaluating a capital budgeting project that should last for 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 Appendix 11A of our text book. The company's WACC is 10%, and its tax rate is 40%.
a. What would the depreciation expense be under each year under each method? (I have already answered this part of the question)
b. Which depreciation method would provduce the higher NPV, and how much higher would it be?
Please show all work.
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MRI Company has one employee. FICA Social Security taxes are 6.2% of the first $106,800 paid to its employee, and FICA Medicare taxes are 1.45% of gross pay. For MRI, its FUTA taxes are 0.8% and SUTA taxes are 2.9% of the first $7,000 paid to its ..
Funzy Cereal includes one coupon in its cereal and offers a toy car in exchange for $1.00 and coupons. The cars cost $1.50. 40% of the coupons were redeemed in the 1st month. 12 million boxes of cereal were sold and 2.4 million coupons redeemed. W..
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