On january 1, 2016, knapp corporation acquired machinery at a cost of $1,250,000. knapp adopted the double-declining balance met
hod of depreciation for this machinery and had been recording depreciation over an estimated useful life of ten years, with no residual value. at the beginning of 2019, a decision was made to change to the straight-line method of depreciation for the machinery. the depreciation expense for 2019 would be
Cost on January 1 2016 = $1,250,000 Life = 10 years
Therefore, Double-declining depreciation rate = 2*(1,250,000/10)/1,250,000 = 2*0.1 = 2*10% = 20% Book value at end of 2016 = 1,250,000 - (1,250,000*20/100) = $1,000,000 Book value at end of 2017 = 1,000,000 - (1,000,000*20/100) = $800,000 Book value at end of 2018 = 800,000 - (800,000*20/100) = $640,000
Changing to straight line depreciation: Life remaining = 7 years Book value = $640,000
Depreciation expense per year = 640,000/7 = $91,428.57
Therefore, depreciation expense for 2019 = $91,428.57
A business raises capital through debt or equity. Debts represent borrowed funds, which include bonds and loans. Equity represents the owner's funds, which comprises of shares and retained earnings.
Should a business not have enough funds for its long term needs, it can sell more shares to the existing shareholders or the general public. Shares represent ownership of the company. Selling common stock means that the company will receive the funds it requires in exchange for ownership rights. Shareholder earns dividends as a reward for providing capital to businesses.
In a case whereby poornima gupta is retiring soon, so she is concerned about her investments providing her steady income every year, the risk is poornima most concerned about protecting against is interest reinvestment risk.
<h3>What is interest reinvestment risk?</h3>
Reinvestment rate risk can be described as the risk that should be considered in the case whereby the investor have the reason to carry out reinvestment in regards with the future cash flows which could come inform of a lower return as a result of the interest rate declines.
It should be that this risk is very important to be taken serious by the investors because any slight mistake can result to very huge lost in the part of the investor and this can bring down there investor in term of finance which is very dangerous for his health as well as other investment that he have outside.
