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seraphim [82]
3 years ago
14

Depreciation Methods A delivery truck costing $22,000 is expected to have a $2,000 salvage value at the end of its useful life o

f four years or 100,000 miles. Assume that the truck was purchased on January 2. Calculate the depreciation expense for the second year using each of the following depreciation methods: (a) straight-line, (b) double-declining balance, and (c) units-of-production. (Assume that the truck was driven 30,000 miles in the second year.) Round all answers to the nearest dollar. a. Straight-line Answer b. Double-declining balance Answer c. Units-of-production Answer
Business
1 answer:
Artist 52 [7]3 years ago
4 0

Answer:

a. $5,000

b. $5,500

c. $6,000

Explanation:

The computation of the depreciation expense for the second year is shown below:

a) Straight-line method:

= (Original cost - residual value) ÷ (useful life)

= ($22,000 - $2,000) ÷ (4 years)

= ($20,000) ÷ (4 years)

= $5,000

In this method, the depreciation is same for all the remaining useful life

(b) Double-declining balance method:

First we have to find the depreciation rate which is shown below:

= One ÷ useful life

= 1 ÷ 4

= 25%

Now the rate is double So, 50%

In year 1, the original cost is $22,000, so the depreciation is $11,000 after applying the 50% depreciation rate

And, in year 2, the $11,000 × 50% = $5,500

(c) Units-of-production method:

= (Original cost - residual value) ÷ (estimated production)

= ($22,000 - $2,000) ÷ ($100,000 miles)

= ($20,000) ÷ ($100,000 miles)

= $0.2 per miles

Now for the second year, it would be

= Production units in second year × depreciation per miles

= 30,000 miles × $0.2

= $6,000

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1. Johnny did not like to play Hopscotch, so offering Suzie one day of Hopscotch for two days of bug hunting is fair and no price discrimination occured as he did not offer these terms to someone else who's game he did not like.

2. Sam knew that Johnny really liked playing Slaps so he leveraged on that and offered him more expensive terms so to speak than he did to Bill even though he liked playing the both games equally. This means that he charged Johnny more than Bill simply because Johnny liked and preferred his game alot which is Price discrimination.

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3 years ago
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Answer:

Project A

Years      Cashflows     Discount factor     Present values

0            250,000                    1                           -250,000

1-10            45,100                   6.144                     277,094.40

Sum of all present value=NPV=27,094.40

IRR (by using trial and error method) = 12.4696%

Note: Discount factor for the year 1-10 is calculated by using annuity formula i.e [1-(1+10%)]/10% = 6.144

Project B

Years Cashflows Discount factor  Present values

0        (350,000)           1                              (350,000)

1           72,500               0.91                   65,975  

2           65,500               0.83                    54,365  

3           73,800                  0.75                    55,350  

4            71,500                  0.68                    48,620  

5           69,800                  0.62                   43,276  

6           75,500             0.56                   42,280  

7           31,000                  0.51                            15,810  

8           47,500                  0.47                           22,325  

9           55,500                  0.42                   23,310  

10           29,200                  0.38                    11,096

Sum of all present values=NPV=32,407

IRR(by using trial and error method=12.4186%

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b)The conflict between both the investment appraisal technique is likely due to different cash flow patterns of both the project. In such situation decision should be based on NPV because this is an absolute measure

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3 years ago
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