(Depreciation) You are considering the following investment: 3 4 5 6 7 8 9 10 11 12 13 14 Year AB CD EF GH I 01 2 Earnings before depreciation and taxes Depreciation Earnings before taxes Tax (34%) Net operating profit after tax Capital investment (no salvage value) –10,500 Add back depreciation Free cash flow Discount rate NPV 11% a. Assuming that the investment can be depreciated using 7-year straight-line depreciation with no salvage value, calculate the project NPV. b. What will be the company’s gain in present value if it uses a 7-year modified accelerated depreciation (MACRS) schedule, given below:
5. (Depreciation) You are considering the following investment:
A
B
c D E F G H 0 1 2 3 4 5 6 7 3,000 3,000 3,000 2,500 2,500 2,500 2,500
3 Year 4 Earnings before depreciation and taxes 5 Depreciation 6 Earnings before taxes 7 Tax (34%) 8 Net operating profit after tax 9 Capital investment (no salvage value) 10,500 10 Add back depreciation 11 Free cash flow 12 13 Discount rate 11% 14 NPV
0
a. Assuming that the investment can be depreciated using 7-year straight-line depreciation with no salvage value, calculate the project NPV.
b. What will be the company's gain in present value if it uses a 7-year modified accelerated depreciation (MACRS) schedule, given below