Answer:
b. NPW(SL): $33,738; NPW(DDB): $37,068; Recommendation: DDB
Explanation:
The computation is shown below:
As we know that
Present value is
= [Cash Flow ÷ (1 + Rate of Interest)^Year]
where,
Rate of Interest = 10%
Under Straight-line depreciation:
Beginning book value = $50,000
Salvage value = $5,500
So, the depreciationper year is
= [($50,000 - $5,500) ÷ 5]
= $8,900
<u>Year Beginning Depreciation End Present value </u>
<u> book value book value of depreciation
</u>
1 $50,000 $8,900 $41,100 $8,090.91
2 $41,100 $8,900 $32,200 $7,355.37
3 $32,200 $8,900 $23,300 $6,686.70
4 $23,300 $8,900 $14,400 $6,078.82
5 $14,400 $8,900 $5,500 $5,526.20
$33,738.00
Under Double declining depreciation:
Depreciation rate per year = (1 ÷ Useful Life) × 100
= 1 ÷ 5 × 100
= 20%
Now for double-declining, the rate is doubled
So,
= 20% × 2
= 40%
<u>Year Beginning Depreciation End Present value </u>
<u> book value book value of depreciation
</u>
1 $50,000 $20,000 $30,000 $18,181.82
2 $30,000 $12,000 $18,000 $9,917.36
3 $18,000 $7,200 $10,800 $5,409.47
4 $10,800 $4,320 $6,480 $2,950.62
5 $6,480 $980 $5,500 $608.50
$37,068
