Assuming a agricultural water project that has an initial investment of 1 billion RMB and a time frame of 5 years, with a predicted 0.8 billion RMB/year revenue and operation fee 0.45 billion RMB plus...

Why straight-line depreciation method is used instead of the sinking fund depreciation method?

Extracted text: Assuming a agricultural water project that has an initial investment of 1 billion RMB and a time frame of 5 years, with a predicted 0.8 billion RMB/year revenue and operation fee 0.45 billion RMB plus 25% of enterprise income tax. If to adopt the straight-line depreciation method, the weighted mean capital cost is 10%. According to the corresponding equations mentioned above, the project can get its investment NPV, EVA and accumulative economic value added (MVA) (Table 1). Table 1: NPV and EVA investment decision analysis of agricultural water project (unit: 10 thousand RMB) Time (year) 4 5 Initial investment 100000 80000 Operation income Operation cost Depreciation Income taxation 80000 80000 80000 80000 45000 20000 3750 45000 45000 45000 45000 20000 3750 20000 20000 20000 3750 3750 11250 3750 11250 31250 11250 31250 NOPAT 11250 11250 After-tax cash flow 31250 31250 31250 NPV 18462 Capital cost EVA 10000 1250 10000 1250 10000 10000 10000 1250 1250 1250 MVA 18462