1. Construct a table showing the first-year costs, annual costs, and the annual benefits for the following investment proposal:

Costs:

• Initial investment (software, hardware, implementation) $180,000, incurred in year zero.
• Software maintenance (starting in year two) $30,000 per year, increasing at a rate of 3% per year thereafter

Benefits:

• Labor savings $140,000 per year, starting in year two
• Equipment savings $55,000, year one only.
• Increased clinic revenue, $50,000 per year, starting in year one.
• All yearly savings increase at the rate of inflation, assumed to be 3% per year.

Calculate the Net Present Value of this proposed investment at the end of the five-year planning cycle using a discount rate of 5%. Show your work. Assume that one-time costs are incurred in year zero, and annual costs and savings are incurred in years 1 through 5.

Determine the payback period in years for a project that costs $45,000 and would yield after-tax cash flows of $9,000 the first year, $11,000 the second year, $14,000 the third year, $16,000 the fourth year, $20,000 the fifth year, and $26,000 the sixth year.

Comparing Three Depreciation Methods

Waylander Coatings Company purchased waterproofing equipment on January 6 for $540,600. The equipment was expected to have a useful life of four years, or 8,000 operating hours, and a residual value of $44,600. The equipment was used for 3,000 hours during Year 1, 2,500 hours in Year 2, 1,400 hours in Year 3, and 1,100 hours in Year 4.

Required:

1. 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) the units-of-output method, and (c) the double-declining-balance method. Also, determine the total depreciation expense for the four years by each 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.

2. What method yields the highest depreciation expense for Year 1?

3. What method yields the most depreciation over the four-year life of the equipment?

Waylander Coatings Company purchased waterproofing equipment on January 6 for $610,400. The equipment was expected to have a useful life of four years, or 8,000 operating hours, and a residual value of $50,400. The equipment was used for 3,000 hours during Year 1, 2,500 hours in Year 2, 1,400 hours in Year 3, and 1,100 hours in Year 4.

Required:

1. 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) the units-of-activity method, and (c) the double-declining-balance method. Also determine the total depreciation expense for the four years by each 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.

2. What method yields the highest depreciation expense for Year 1?

3. What method yields the most depreciation over the four-year life of the equipment?

Waylander Coatings Company purchased waterproofing equipment on January 6 for $610,400. The equipment was expected to have a useful life of four years, or 8,000 operating hours, and a residual value of $50,400. The equipment was used for 3,000 hours during Year 1, 2,500 hours in Year 2, 1,400 hours in Year 3, and 1,100 hours in Year 4.

Required:

1. 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) the units-of-activity method, and (c) the double-declining-balance method. Also determine the total depreciation expense for the four years by each 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.

2. What method yields the highest depreciation expense for Year 1?

3. What method yields the most depreciation over the four-year life of the equipment?

Comparing Three Depreciation Methods

Waylander Coatings Company purchased waterproofing equipment on January 6 for $487,400. The equipment was expected to have a useful life of four years, or 10,400 operating hours, and a residual value of $40,200. The equipment was used for 4,000 hours during Year 1, 3,200 hours in Year 2, 1,900 hours in Year 3, and 1,300 hours in Year 4.

Required:

1. 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) the units-of-output method, and (c) the double-declining-balance method. Also determine the total depreciation expense for the four years by each 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.

2. What method yields the highest depreciation expense for Year 1?

3. What method yields the most depreciation over the four-year life of the equipment?

Comparing Three Depreciation Methods

Waylander Coatings Company purchased waterproofing equipment on January 6 for $314,800. The equipment was expected to have a useful life of four years, or 7,600 operating hours, and a residual value of $26,000. The equipment was used for 2,900 hours during Year 1, 2,400 hours in Year 2, 1,400 hours in Year 3, and 900 hours in Year 4.

Required:

1. 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) the units-of-output method, and (c) the double-declining-balance method. Also determine the total depreciation expense for the four years by each 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.

2. What method yields the highest depreciation expense for Year 1?

3. What method yields the most depreciation over the four-year life of the equipment?

Comparing Three Depreciation Methods

Waylander Coatings Company purchased waterproofing equipment on January 6 for $272,000. The equipment was expected to have a useful life of four years, or 6,400 operating hours, and a residual value of $22,400. The equipment was used for 2,400 hours during Year 1, 2,000 hours in Year 2, 1,200 hours in Year 3, and 800 hours in Year 4.

Required:

1. 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) the units-of-activity method, and (c) the double-declining-balance method. Also determine the total depreciation expense for the four years by each 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.

2. What method yields the highest depreciation expense for Year 1?

3. What method yields the most depreciation over the four-year life of the equipment?

Comparing Three Depreciation Methods

Waylander Coatings Company purchased waterproofing equipment on January 6 for $321,800. The equipment was expected to have a useful life of four years, or 7,200 operating hours, and a residual value of $26,600. The equipment was used for 2,700 hours during Year 1, 2,200 hours in Year 2, 1,300 hours in Year 3, and 1,000 hours in Year 4.

Required:

1. 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) the units-of-activity method, and (c) the double-declining-balance method. Also determine the total depreciation expense for the four years by each 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.

Depreciation Expense

Year   Straight-Line Method Units-of-Activity Method    Double-Declining-Balance Method

Year 1 $_______________ $___________________ $______________________

Year 2 $_______________ $___________________ $______________________

Year 3 $_______________ $___________________ $______________________

Year 4 $_______________ $___________________ $______________________

Total $_______________ $___________________ $______________________

What method yields the highest depreciation expense for Year 1? ______________

  What method yields the most depreciation over the four-year life of the equipment? _______________