Depreciation by Three Methods; Partial Years

Perdue Company purchased equipment on April 1 for $64,260. The equipment was expected to have a useful life of three years, or 5,940 operating hours, and a residual value of $1,890. The equipment was used for 1,100 hours during Year 1, 2,100 hours in Year 2, 1,800 hours in Year 3, and 940 hours in Year 4.

Required:

Determine the amount of depreciation expense for the years ended December 31, Year 1, Year 2, Year 3, and Year 4, by (a) the straight-line method, (b) units-of-activity method, and (c) the double-declining-balance method.

Note: FOR DECLINING BALANCE ONLY, round the multiplier to four decimal places. Then round the answer for each year to the nearest whole dollar.

a. Straight-line method

b. Units-of-activity method

c. Double-declining-balance method

Feedback

a. Asset cost minus residual value equals depreciable cost. Sum the yearly depreciation to determine total depreciation.

b. Annual units-of-activity depreciation allocates the cost of the asset equally over the units produced (hours).

c. The double-declining rate is two times the straight-line rate. Book value is the asset cost minus accumulated depreciation.

Compare the total depreciation for all methods over the time period. Recall that straight-line depreciation allocates the depreciable cost of the asset equally over the period of use, while double-declining method is an accelerated method.

1A) What is the discount rate at which the following cash flows have a NPV of $0? Answer in %, rounding to 2 decimals.

Year 0 cash flow = -149,000
Year 1 cash flow = 39,000
Year 2 cash flow = 30,000
Year 3 cash flow = 40,000
Year 4 cash flow = 30,000
Year 5 cash flow = 41,000
Year 6 cash flow = 37,000

1B) What is the discounted payback period on Versace's proposed investment in a new line of fashion clothes? The expected cash flows appear below. Note that year 0 and year 1 cash flows are negative. (Answer in years; round to 2 decimals)

Year 0 cash flow = -95,000
Year 1 cash flow = -18,000
Year 2 cash flow = 50,000
Year 3 cash flow = 49,000
Year 4 cash flow = 54,000
Year 5 cash flow = 45,000
Year 6 cash flow = 46,000


Required rate of return = 14.00%

1C) US Robotics is evaluating a new product line. The CFO asks for an estimate of number of years to recover the initial investment, ignoring the time value of money. You realize that this is the payback period. The estimated cash flows from the new product line appear below. (Answer in years, round to 2 places)

Year 0 cash flow = -82,000
Year 1 cash flow = -41,000
Year 2 cash flow = 24,000
Year 3 cash flow = 40,000
Year 4 cash flow = 22,000
Year 5 cash flow = 26,000
Year 6 cash flow = 36,000
Year 7 cash flow = 39,000

ANSWER EACH PART (A,B,C)

Morris Inc. recorded the following transactions over the life of a piece of equipment purchased in Year 1:

Required: Prepare the journal entry for the disposal of the equipment on October 1, Year 6.

Program 3: Give a baby $5,000!  Did you know that, over the last century, the stock market has returned an average of 10%?  You may not care, but you’d better pay attention to this one.  If you were to give a newborn baby $5000, put that money in the stock market and NOT add any additional money per year, that money would grow to over $2.9 million by the time that baby is ready for retirement (67 years)!  Don’t believe us?  Check out the compound interest calculator from MoneyChimp and plug in the numbers!

To keep things simple, we’ll calculate interest in a simple way.  You take the original amount (called the principle) and add back in a percentage rate of growth (called the interest rate) at the end of the year.  For example, if we had $1,000 as our principle and had a 10% rate of growth, the next year we would have $1,100.  The year after that, we would have $1,210 (or $1,100 plus 10% of $1,100).  However, we usually add in additional money each year which, for simplicity, is included before calculating the interest.

Your task is to design (pseudocode) and implement (source) for a program that 1) reads in the principle, additional annual money, years to grow, and interest rate from the user, and 2) print out how much money they have each year.  Task 3: think about when you earn the most money! Lesson learned: whether it’s your code or your money, save early and save often…

Sample run 1:

Enter the principle: 2000

Enter the annual addition: 300

Enter the number of years to grow: 10

Enter the interest rate as a percentage: 10

Year 0: $2000

Year 1: $2530

Year 2: $3113

Year 3: $3754.3

Year 4: $4459.73

Year 5: $5235.7

Year 6: $6089.27

Year 7: $7028.2

Year 8: $8061.02

Year 9: $9197.12

Year 10: $10446.8

Sample run 2 (yeah, that’s $9.4MM):

Enter the principle: 5000

Enter the annual addition: 1000

Enter the number of years to grow: 67

Enter the interest rate as a percentage: 10

Year 0: $5000

Year 1: $6600

Year 2: $8360

Year 3: $10296

Year 4: $12425.6

Year 5: $14768.2

.

.

Year 59: $4.41782e+06

Year 60: $4.86071e+06

Year 61: $5.34788e+06

Year 62: $5.88376e+06

Year 63: $6.47324e+06

Year 64: $7.12167e+06

Year 65: $7.83493e+06

Year 66: $8.61952e+06

Year 67: $9.48258e+06

////////////( PLEASE WRITE IN PSEUDOCODE )/////////////////

Program 3: Give a baby $5,000! Did you know that, over the last century, the stock market has returned an average of 10%? You may not care, but you’d better pay attention to this one. If you were to give a newborn baby $5000, put that money in the stock market and NOT add any additional money per year, that money would grow to over $2.9 million by the time that baby is ready for retirement (67 years)! Don’t believe us? Check out the compound interest calculator from MoneyChimp and plug in the numbers!

To keep things simple, we’ll calculate interest in a simple way. You take the original amount (called the principle) and add back in a percentage rate of growth (called the interest rate) at the end of the year. For example, if we had $1,000 as our principle and had a 10% rate of growth, the next year we would have $1,100. The year after that, we would have $1,210 (or $1,100 plus 10% of $1,100). However, we usually add in additional money each year which, for simplicity, is included before calculating the interest.

Your task is to design (pseudocode) and implement (source) for a program that 1) reads in the principle, additional annual money, years to grow, and interest rate from the user, and 2) print out how much money they have each year. Task 3: think about when you earn the most money!

Lesson learned: whether it’s your code or your money, save early and save often…

Sample run 1:

Enter the principle: 2000

Enter the annual addition: 300

Enter the number of years to grow: 10

Enter the interest rate as a percentage: 10

Year 0: $2000

Year 1: $2530

Year 2: $3113

Year 3: $3754.3

Year 4: $4459.73

Year 5: $5235.7

Year 6: $6089.27

Year 7: $7028.2

Year 8: $8061.02

Year 9: $9197.12

Year 10: $10446.8

Sample run 2 (yeah, that’s $9.4MM):

Enter the principle: 5000

Enter the annual addition: 1000

Enter the number of years to grow: 67

Enter the interest rate as a percentage: 10

Year 0: $5000

Year 1: $6600

Year 2: $8360

Year 3: $10296

Year 4: $12425.6

Year 5: $14768.2

.

.

Year 59: $4.41782e+06

Year 60: $4.86071e+06

Year 61: $5.34788e+06

Year 62: $5.88376e+06

Year 63: $6.47324e+06

Year 64: $7.12167e+06

Year 65: $7.83493e+06

Year 66: $8.61952e+06

Year 67: $9.48258e+06

: Give a baby $5,000! Did you know that, over the last century, the stock market has returned an average of 10%? You may not care, but you’d better pay attention to this one. If you were to give a newborn baby $5000, put that money in the stock market and NOT add any additional money per year, that money would grow to over $2.9 million by the time that baby is ready for retirement (67 years)! Don’t believe us? Check out the compound interest calculator from MoneyChimp and plug in the numbers!

To keep things simple, we’ll calculate interest in a simple way. You take the original amount (called the principle) and add back in a percentage rate of growth (called the interest rate) at the end of the year. For example, if we had $1,000 as our principle and had a 10% rate of growth, the next year we would have $1,100. The year after that, we would have $1,210 (or $1,100 plus 10% of $1,100). However, we usually add in additional money each year which, for simplicity, is included before calculating the interest.

Your task is to design (pseudocode) and implement (source) for a program that 1) reads in the principle, additional annual money, years to grow, and interest rate from the user, and 2) print out how much money they have each year. Task 3: think about when you earn the most money!

Lesson learned: whether it’s your code or your money, save early and save often…

Sample run 1:

Enter the principle: 2000

Enter the annual addition: 300

Enter the number of years to grow: 10

Enter the interest rate as a percentage: 10

Year 0: $2000

Year 1: $2530

Year 2: $3113

Year 3: $3754.3

Year 4: $4459.73

Year 5: $5235.7

Year 6: $6089.27

Year 7: $7028.2

Year 8: $8061.02

Year 9: $9197.12

Year 10: $10446.8

Sample run 2 (yeah, that’s $9.4MM):

Enter the principle: 5000

Enter the annual addition: 1000

Enter the number of years to grow: 67

Enter the interest rate as a percentage: 10

Year 0: $5000

Year 1: $6600

Year 2: $8360

Year 3: $10296

Year 4: $12425.6

Year 5: $14768.2

.

.

Year 59: $4.41782e+06

Year 60: $4.86071e+06

Year 61: $5.34788e+06

Year 62: $5.88376e+06

Year 63: $6.47324e+06

Year 64: $7.12167e+06

Year 65: $7.83493e+06

Year 66: $8.61952e+06

Year 67: $9.48258e+06

Use a 5 percent discount rate to compute the NPV of each of the following series of cash receipts and payments: Use Appendix A and Appendix B. $6,200 received now (year 0), $1,890 paid in year 3, and $4,000 paid in year 5. $10,000 paid now (year 0), $12,690 paid in year 2, and $31,000 received in year 8. $20,000 received now (year 0), $13,500 paid in year 5, and $7,500 paid in year 10.

What would be the interest rate on a 10-year Treasury bond, given the following information? kpr = 2% MR = 0.1% for a 1-year loan, increasing by 0.1% each additional year. LR = 0.5% DR= 0 for a 1-year loan, 0.1% for a 2-year loan, increasing by 0.1% for each additional year. Expected inflation rates: Year 1 = 3.0% Year 2 = 4.0% Year 3 and thereafter: 5.0% 6.7% 9.1% 7.7% 8.9%

All years that are evenly divisible by 400 or are evenly divisible by four and not evenly divisible 100 are leap years. For example, since 1600 is evenly divisible by 400, the year 1600 was a leap year. Similarly, since 1988 is evenly divisible by four but not 100, the year 1988 was also a leap year. Using this information, write a C++ program that accepts the year as user input, determines if the year is a leap year, and displays an appropriate message that tells the user whether the entered year is or is not a leap year.