Answer:
purchase cost $86,670
useful life 3 years, 6,480 operating hours
residual value $2,430
a. the straight-line method
depreciation expense per year = ($86,670 - $2,430) / 3 = $28,080
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depreciation year 1 = $28,080 x 9/12 = $21,060
- depreciation year 2 = $28,080
- depreciation year 3 = $28,080
- depreciation year 4 = $28,080 x 3/12 = $7,020
b. units-of-output method.
depreciation per hour = ($86,670 - $2,430) / 6,480 = $13
-
depreciation year 1 = 1,200 x $13 = $15,600
- depreciation year 2 = 2,300 x $13 = $29,900
- depreciation year 3 = 1,900 x $13 = $24,700
- depreciation year 4 = 1,080 x $13 = $14,040
c. the double-declining-balance method.
-
depreciation year 1 = 2 x 1/3 x $86,670 x 9/12 = $43,335
- depreciation year 2 = $14,445 + (2 x 1/3 x $28,890 x 9/12) = $28,090
- depreciation year 3 = $4,815 + (2 x 1/3 x $9,630 x 9/12) = $9,630
- depreciation year 4 = $1,605 + ($3,210 - $2,430) = $2,385
Answer:
In finance, the net present value or net present worth applies to a series of cash flows occurring at different times. The present value of a cash flow depends on the interval of time between now and the cash flow. It also depends on the discount rate. NPV accounts for the time value of money.
The internal rate of return is a measure of an investment’s expected future rate of return. As the IRR is an estimate of a future annual rate of return, IRR should not be confused with the actual achieved investment return of an historical investment.
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