DEPRECIATION SCHEDULE Section a. straight line depreciation Year 0 1 2 3 4 5 6 7 Earnings before depreciation and taxes 3,000 3,000 3,000 2,500 2,500 2,500 2,500 Depreciation Earnings before taxes Tax (34%) Net operating profit after tax Capital investment (no salvage value) -10,500 0 Add back depreciation Free cash flow Discount rate 11% NPV Section b. MACRS depreciation Year 0 1 2 3 4 5 6 7 8 MACRS depreciation 14.29% 24.49% 17.49% 12.49% 8.93% 8.93% 8.93% 4.45% Earnings before depreciation and taxes 3,000 3,000 3,000 2,500 2,500 2,500 2,500 0 Depreciation Earnings before taxes Tax (34%) Net operating profit after tax Capital investment (no salvage value) -10,500 0 Add back depreciation Free cash flow Discount rate 11% NPV
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The initial investment is $10,500 and it can be depreciated over 7 years. So, the annual depreciation is $10,500/7 = $1,500. Show more…
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