Which depreciation method would produce the higher npv

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Reference no: EM132048057

Wendy's boss wants to use straight-line depreciation for the new expansion project because he said it will give higher net income in earlier years and give him a larger bonus. The project will last 4 years and requires $600,000 of equipment. The company could use either 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 33.33%, 44.45%, 14.81%, and 7.41%. The project cost of capital is 8%, and its tax rate is 40%. What would the depreciation expense be each year under each method? Which depreciation method would produce the higher NPV? How much higher would it be? Round your answer to the nearest dollar.

Reference no: EM132048057

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