Western Electric has 21,000 shares of common stock outstanding at a price per share of $61 and a rate of return of 15.6 percent.
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Answer:
Depreciation is defined as fall or decline in the value of an asset due to normal wear and tear or efflux of time.
Depreciation as per straight line method =
Depreciation to be written off every year =
= $38,960
Hence rate of depreciation under straight line method (SLM) = $38960/$238,400= 16.34% per annum
Rate of depreciation as per double declining method = 2 × rate of depreciation as per SLM
= 2 × 16.34%= 32.68%
Under double declining method, depreciation expense each year= double decling rate in percent × book value of the asset at the beginning of each year
Depreciation for first year= 32.68% × 238400= $77,909
Depreciation for year 2 = 32.68% of (238,400- 77,909 )= $52,448
Year 3= 32.68% of (238,400- 77,909-52448)= $35,308
Year 4= 32.68% of (238,400-77,909-52,448-35,308)= $23,770
Year 5= 32.68% of (238,400- 77,909-52,448-35308-23770)= $16,001