Never, Inc., earns book net income before tax of $500,000. In computing its book income, Never deducts $50,000 more in warranty
1 answer:
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Answer:
Refer explanation
Explanation:
1. Straight-line depreciation:
It is the simplest method of calculating depreciation and believes that the asset's value depreciates equally every year.
Depreciation per year = (Cost of asset - salvage value) / number of useful life years.
Please refer attached table one for all years depreciation.
2. Double-declining balance Method:
This is where the asset's value is depreciated at twice the rate than the straight line method. The depreciation amounts would be higher in the early years of the asset's life and gradually reduce towards the end. Hence, it does not mean that the depreciation amount would be higher than the straight line basis.
Straight Line depreciation per year = 1/5* x 100 = 20%
*as it is useful for five years
Hence double-depreciation value = 20% x 2 = 40%
It is calculated as depreciation rate x book value of asset at the beginning of the period.
Please refer attached table two for all years depreciation.
3. Activity based depreciation is whereby an asset is depreciated based on the asset’s activity such as the number of hours worked or the number of units produced, during a particular period of time. Activity based depreciation per year is calculated as:
[(Cost - Salvage value) x activity performed during the period] / Total estimated life activity of the asset
Please refer attached table three for all years depreciation.
Answer:
Cost of Equity 16.33%
Explanation:
We solve for this using CAMP:
risk free = 0.0387
premium market = (market rate - risk free) 0.0903
beta(non diversifiable risk) = 1.38
Ke 0.16331 = 16.33%
We are given with the risk free rate of return and the market premium already so we just need to plug into the formula to solve for the expected return on the stock.