Kristin is evaluating a capital budgeting project that should last for 4 years.

Question

Kristin is evaluating a capital budgeting project that should last for 4 years. The project requires $325,000 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%. The company's WACC is 12%, and its tax rate is 30%. >>>>>a).What would the depreciation expense be each year under each method (one through four)? (Round your answers to the nearest cent.)

Explanation / Answer

Particulars Straight line method MACRS method machine Cost $325,000 $325,000 Amount Rate of depre Amount Year1 $81,250 33% $107,250 Year2 $81,250 45% $146,250 Year3 $81,250 15% $48,750 Year4 $81,250 7% $22,750

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