Charlene is evaluating a capital budgeting project that should last for 4 years. The project requires $800,000 of equipment and is eligible for 100% bonus depreciation. She is unsure whether immediately expensing the equipment or using straight-line depreciation is better for the analysis. Under straight-line depreciation, the cost of the equipment would be depreciated evenly over its 4-year life. The company’s WACC is 8%, and its tax rate is 25%. a. What would the depreciation expense be each year under each method? b. Which depreciation method would produce the higher NPV, and how much higher would it be?
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Charlene is evaluating a capital budgeting project that should last for 4 years. The project requires $800,000 of equipment and is eligible for 100% bonus
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- Friedman Company is considering installing a new IT system. The cost of the new system is estimated to be 2,250,000, but it would produce after-tax savings of 450,000 per year in labor costs. The estimated life of the new system is 10 years, with no salvage value expected. Intrigued by the possibility of saving 450,000 per year and having a more reliable information system, the president of Friedman has asked for an analysis of the projects economic viability. All capital projects are required to earn at least the firms cost of capital, which is 12 percent. Required: 1. Calculate the projects internal rate of return. Should the company acquire the new IT system? 2. Suppose that savings are less than claimed. Calculate the minimum annual cash savings that must be realized for the project to earn a rate equal to the firms cost of capital. Comment on the safety margin that exists, if any. 3. Suppose that the life of the IT system is overestimated by two years. Repeat Requirements 1 and 2 under this assumption. Comment on the usefulness of this information.The Rodriguez Company is considering an average-risk investment in a mineral water spring project that has an initial after-tax cost of 170,000. The project will produce 1,000 cases of mineral water per year indefinitely, starting at Year 1. The Year-1 sales price will be 138 per case, and the Year-1 cost per case will be 105. The firm is taxed at a rate of 25%. Both prices and costs are expected to rise after Year 1 at a rate of 6% per year due to inflation. The firm uses only equity, and it has a cost of capital of 15%. Assume that cash flows consist only of after-tax profits because the spring has an indefinite life and will not be depreciated. a. What is the present value of future cash flows? (Hint: The project is a growing perpetuity, so you must use the constant growth formula to find its NPV.) What is the NPV? b. Suppose that the company had forgotten to include future inflation. What would they have incorrectly calculated as the projects NPV?Gina Ripley, president of Dearing Company, is considering the purchase of a computer-aided manufacturing system. The annual net cash benefits and savings associated with the system are described as follows: The system will cost 9,000,000 and last 10 years. The companys cost of capital is 12 percent. Required: 1. Calculate the payback period for the system. Assume that the company has a policy of only accepting projects with a payback of five years or less. Would the system be acquired? 2. Calculate the NPV and IRR for the project. Should the system be purchasedeven if it does not meet the payback criterion? 3. The project manager reviewed the projected cash flows and pointed out that two items had been missed. First, the system would have a salvage value, net of any tax effects, of 1,000,000 at the end of 10 years. Second, the increased quality and delivery performance would allow the company to increase its market share by 20 percent. This would produce an additional annual net benefit of 300,000. Recalculate the payback period, NPV, and IRR given this new information. (For the IRR computation, initially ignore salvage value.) Does the decision change? Suppose that the salvage value is only half what is projected. Does this make a difference in the outcome? Does salvage value have any real bearing on the companys decision?
- Charlene is evaluating a capital budgeting project that should last for 4 years. The project requires $950,000 of equipment and is eligible for 100% bonus depreciation. She is unsure whether immediately expensing the equipment or using straight-line depreciation is better for the analysis. 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 company's WACC is 12%, and its tax rate is 30%. a. What would the depreciation expense be each year under each method? Enter your answers as positive values. Round your answers to the nearest dollar.. Year Scenario 1 (Straight-Line) Scenario 2 (Bonus Depreciation). 0 $ $ 1 $ $ 2 $ $ 3 S $ 4 $ S b. Which depreciation method would produce the higher NPV? Select How much higher would the NPV be under the preferred method? Do not round intermediate calculations. Round your answer to the nearest dollar. $Charlene is evaluating a capital budgeting project that should last for 4 years. The project requires $450,000 of equipment and is eligible for 100% bonus depreciation. She is unsure whether immediately expensing the equipment or using straight-line depreciation is better for the analysis. 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 company's WACC is 8%, and its tax rate is 30%. a. What would the depreciation expense be each year under each method? Enter your answers as positive values. Round your answers to the nearest dollar. Year 0 1 2 3 4 ft Scenario 1 (Straight-Line) $ $ $ $ $ 0 112500 112500 112500 112500 Scenario 2 (Bonus Depreciation) $ 450000 $ $ 0 0 0 0 b. Which depreciation method would produce the higher NPV? Bonus Depreciation V How much higher would the NPV be under the preferred method? Do not round intermediate calculations. Round your…Charlene is evaluating a capital budgeting project that should last for 4 years. The project requires $125,000 of equipment and is eligible for 100% bonus depreciation. She is unsure whether immediately expensing the equipment or using straight-line depreciation is better for the analysis. 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 company's WACC is 8%, and its tax rate is 30%. What would the depreciation expense be each year under each method? Enter your answers as positive values. Round your answers to the nearest dollar. Year Scenario 1(Straight-Line) Scenario 2(Bonus Depreciation) 0 $ $ 1 $ $ 2 $ $ 3 $ $ 4 $ $ Which depreciation method would produce the higher NPV? Straight-Line or Bonus DepreciationHow much higher would the NPV be under the preferred method? Do not round intermediate calculations. Round…
- Charlene is evaluating a capital budgeting project that should last for 4 years. The project requires $525,000 of equipment and is eligible for 100% bonus depreciation. She is unsure whether immediately expensing the equipment or using straight-line depreciation is better for the analysis. 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 company's WACC is 12%, and its tax rate is 30%. What would the depreciation expense be each year under each method? Enter your answers as positive values. Round your answers to the nearest dollar.Charlene is evaluating a capital budgeting project that should last for 4 years. The project requires $325,000 of equipment and is eligible for 100% bonus depreciation. She is unsure whether immediately expensing the equipment or using straight-line depreciation is better for the analysis. 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 company's WACC is 9%, and its tax rate is 30%. a. What would the depreciation expense be each year under each method? Enter your answers as positive values. Round your answers to the nearest dollar. b. Which depreciation method would produce the higher NPV? -Select- How much higher would the NPV be under the preferred method? Do not round intermediate calculations. Round your answer to the nearest dollar. Year Scenario 1 (Straight-Line) Scenario 2 (Bonus Depreciation) +A +A +A +A +A 0 1 2 3 4Charlene is evaluating a capital budgeting project that should last for 4 years. The project requires $300,000 of equipment and is eligible for 100% bonus depreciation. She is unsure whether immediately expensing the equipment or using straight-line depreciation is better for the analysis. 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 company's WACC is 12%, and its tax rate is 25%. a. What would the depreciation expense be each year under each method? Enter your answers as positive values. Round your answers to the nearest dollar. Year 0 1 2 3 4 Scenario 1 (Straight-Line) $ $ $ $ $ Scenario 2 (Bonus Depreciation) unsS $ b. Which depreciation method would produce the higher NPV? -Select- How much higher would the NPV be under the preferred method? Do not round intermediate calculations. Round your answer to the nearest dollar. $
- Charlene is evaluating a capital budgeting project that should last for 4 years. The project requires $725,000 of equipment and is eligible for 100% bonus depreciation. She is unsure whether immediately expensing the equipment or using straight-line depreciation is better for the analysis. 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 company's WACC is 11%, and its tax rate is 25%. What would the depreciation expense be each year under each method? Enter your answers as positive values. Round your answers to the nearest dollar. Year Scenario 1(Straight-Line) Scenario 2(Bonus Depreciation) 0 $ $ 1 $ $ 2 $ $ 3 $ $ 4 $ $ Which depreciation method would produce the higher NPV?How much higher would the NPV be under the preferred method? Do not round intermediate calculations. Round your answer to the nearest dollar.$Veronica is evaluating a capital budgeting project that should last for 4 years. The project requires $875,000 of equipment and is eligible for 100% bonus depreciation. She is unsure whether immediately expensing the equipment or using straight-line depreciation is better for the analysis. 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 company's WACC is 8%, and its tax rate is 30%. What would the depreciation expense be each year under each method? Enter your answers as positive values. Round your answers to the nearest dollar. Year Scenario 1(Straight-Line) Scenario 2(Bonus Depreciation) 0 $ $ 1 $ $ 2 $ $ 3 $ $ 4 $ $ Which depreciation method would produce the higher NPV?How much higher would the NPV be under the preferred method? Do not round intermediate calculations. Round your answer to the nearest dollar.$Kristin is evaluating a capital budgeting project that should last 4 years. The project requires P800,000 of equipment. She is unsure what depreciation method to use in her analysis, straight-line or the 3-year MACRS (Modified Accelerated Cost Recovery System Method) method. Under straight-line depreciation, the cost of the equipment would be depreciated evenly over its 4-year life. The applicable MACRS depreciation rates per year are 33%, 45%, 15%, and 7% form year 1 to 4, respectively. The company’s WACC is 10%, and its tax rate is 40%. a. What would the depreciation expense be each year under each method? b. Which depreciation method would produce the higher NPV, and how much higher would it be?