Wendy's boss wants to use straight-line depreciation for the newexpansion project because he said it will give higher net income inearlier years and give him a larger bonus. The project will last 4years and requires $1,730,000 of equipment. The company could useeither straight-line or the 3-year MACRS accelerated method. Understraight-line depreciation, the cost of the equipment would bedepreciated evenly over its 4-year life. (Ignore the half-yearconvention for the straight-line method.) The applicable MACRSdepreciation rates are 33.33%, 44.45%, 14.81%, and 7.41%. Theproject cost of capital is 10%, and its tax rate is 25%.
What would the depreciation expense be each year under eachmethod? Enter your answers as positive values. Do not roundintermediate calculations. Round your answers to the nearestdollar.
Year | Scenario 1
(Straight Line) | Scenario 2
(MACRS) |
| 1 | $Â Â | $Â Â |
| 2 | $Â Â | $Â Â |
| 3 | $Â Â | $Â Â |
| 4 | $Â Â | $Â Â |
Which depreciation method would produce the higher NPV, and howmuch higher would it be? Do not round intermediate calculations.Round your answer to the nearest cent.
The NPV under -Select-Scenario 1Scenario 2Item 9 will be higherby $Â Â Â .
