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3 years ago

Computing first-year depreciation and book value

Business

1 answer:

MArishka [77]3 years ago

4 0

Answer:

1. Compute Austin Airlines' first-year depreciation expense on the plane using the following methods:

a. Straight-line

depreciation expense for first year = ($33,500,000 - $5,500,000) / 5 = $5,600,000 per year

b. Units-of-production

depreciation per mile = ($33,500,000 - $5,500,000) / 4,000,000 = $7 per mile

depreciation expense for first year = $7 x 1,100,000 = $7,700,000

c. Double-declining-balance

depreciation expense for first year = 2 x 1/5 x $33,500,000 = $13,400,000

2. Show the airplane's book value at the end of the first year for all three methods.

a. Straight-line

book value at end of first year = $27,900,000

b. Units-of-production

book value at end of first year = $25,800,000

c. Double-declining-balance

book value at end of first year = $20,100,000

Explanation:

Purchase cost = $33,500,000

useful life of 5 years (or 4,000,000 miles) and residual value of $5,500,000

expected use during first year of 1,100,000 miles

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2 years ago

A corporation makes an investment of $20,000 that will provide the following cash flows after the corresponding amounts of time:

s344n2d4d5 [400]

A) The company should not invest in the provided project due to the negative NPV of the project.

B) The NPV of the project comes out to be (286).

NPV is an abbreviated form of Net present value and computed by deducting the cash outflows from cash inflows at the present value.

Given values:

Cash flow of year 1: $10,000

Cash flow of year 2: $10,000

Cash flow of year 3: $2,000

Cash outflow (cost of investment) =$20,000

Step-1 Computation of PV of cash inflows of every year:

PV of year 1 = Cash inflow of year 1 / (1+ interest rate)^ 1

= $10,000 / (1+0.07) ^ 1

= $10,000 X 0.934579

= $9,346

PV of year 2 = Cash inflow of year 1 / (1+ interest rate)^ 2

= $10,000 / (1+0.07) ^ 2

= $10,000 X 0.873438

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PV of year 3= Cash inflow of year 1 / (1+ interest rate)^ 3

= $2,000 / (1+0.07) ^ 2

= $2,000 X 0.816297

=$1,633

Step-2 Computation of total amount of PV of cash inflows:

$\rm\ PV \rm\ of \rm\ cash \rm\ inflows = \rm\ PV \rm\ of \rm\ year \rm\ 1 + \rm\ PV \rm\ of \rm\ year \rm\ 2 + \rm\ PV \rm\ of \rm\ year \rm\ 3\\\rm\ PV \rm\ of \rm\ cash \rm\ inflows =\$9,346 + \$8,735 + \$1,633\\\rm\ PV \rm\ of \rm\ cash \rm\ inflows =\$19,714$

Step-3 Computation of NPV:

$\rm\ NPV=\rm\ PV \rm\ of \rm\ cash \rm\ inflows- \rm\ Cost \rm\ of \rm\ investment\\\rm\ NPV=\$19,714-\$20,000\\\rm\ NPV=\$ (286)$

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2 years ago

The income statement for Stretch-Tape Corporation reports net sales of $540,000 and net income of $65,700. Average total assets

Mnenie [13.5K]

Answer:

7.3%; 12.17%; 0.6 times; 15.95%

Explanation:

Return on assets:

= Net Income ÷ Average total assets

= ($65,700 ÷ $900,000) × 100

= 7.3%

Profit Margin:

= Net Income ÷ Net Sales

= ($65,700 ÷ $540,000) × 100

= 12.17%

Asset Turnover:

= Net Sales ÷ Average Total Assets

= $540,000 ÷ $900,000

= 0.6 times

Return on Equity:

= Net Income before dividend ÷ Equity

= [($65,700 + $30,000) ÷ $600,000] × 100

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