Comparing three depreciation methods
Dexter Industries purchased packaging equipment on January 8 for $57,600. The equipment was expected to have a useful life of three years, or 14,400 operating hours, and a residual value of $3,600. The equipment was used for 5,760 hours during Year 1, 4,320 hours in Year 2, and 4,320 hours in Year 3.
Required:
1. Determine the amount of depreciation expense for the three years ending December 31, 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 three years by each method. Round the final answers 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 | $ | $ | $ | ||||||
| Total | $ | $ | $ | ||||||
2. What method yields the highest depreciation
expense for Year 1?
3. What method yields the most depreciation
over the three-year life of the equipment?
In: Accounting
Down Under Boomerang, Inc., is considering a new three-year
expansion project that requires an initial fixed asset investment
of $2.46 million. The fixed asset will be depreciated straight-line
to zero over its three-year tax life, after which time it will be
worthless. The project is estimated to generate $2,000,000 in
annual sales, with costs of $695,000. The project requires an
initial investment in net working capital of $220,000, and the
fixed asset will have a market value of $300,000 at the end of the
project. If the tax rate is 35 percent, what is the project’s Year
0 net cash flow? Year 1? Year 2? Year 3? (Do not round
intermediate calculations. Enter your answers in dollars, not
millions of dollars, e.g., 1,234,567. A negative answer should be
indicated by a minus sign.)
| Cash Flow | |
| Year 0 | $ |
| Year 1 | $ |
| Year 2 | $ |
| Year 3 | $ |
If the required return is 16 percent, what is the project's NPV?
(Do not round intermediate calculations and round your
answer to 2 decimal places, e.g., 32.16.)
NPV $
In: Finance
The following data were taken from the financial statements of Hunter Inc. for December 31 of two recent years:
| Current Year | Previous Year | |||
| Accounts payable | $360,000 | $110,000 | ||
| Current maturities of serial bonds payable | 240,000 | 240,000 | ||
| Serial bonds payable, 10% | 1,020,000 | 1,260,000 | ||
| Common stock, $1 par value | 60,000 | 70,000 | ||
| Paid-in capital in excess of par | 590,000 | 600,000 | ||
| Retained earnings | 2,050,000 | 1,630,000 | ||
The income before income tax was $415,800 and $363,800 for the current and previous years, respectively.
a. Determine the ratio of liabilities to stockholders' equity at the end of each year. Round to one decimal place.
| Current year | |
| Previous year |
b. Determine the times interest earned ratio for both years. Round to one decimal place.
| Current year | |
| Previous year |
c. The ratio of liabilities to stockholders' equity has___ and the times interest earned ratio has___ from the previous year. These results are the combined result of a___ income before income taxes and___ interest expense in the current year compared to the previous year.
In: Accounting
37. Apartment building manager reports revenue of $1,350 per month. He was 100% occupied for the year. He pays $70 per month for water & trash for the complex. His insurance was $1,050 for the year. His payment on the building were $8,400 for the year. $4,815 of it was interest. He was $50 in advertising expense for the year. Maintenance totaled for year totaled $925. He will be depreciating the property $2,320 for the year. He is also depreciating a Heat & Air unit at $815 for the year, which he bought and installed this year for the cost of $5,000. He has $5,300 in his business bank account and is holding deposits of $1,300 in escrow. The land is valued at $20,000. The building is valued at 116,000 with the land. Total depreciation on the building has been $25,000. He owns the local printer $65; the plumber, $420 and the local paper $50. He owes $73,500 on the property. Property taxes for the year are $1,725. The owner paid income tax of $12,500 this year.
How much are total annual expenses for the Profit and Loss Statement?
(A) $3,470.00 (B) $12,540.00 (C) $2,935.00 (D) None of the above
In: Accounting
The following data were taken from the financial statements of Hunter Inc. for December 31 of two recent years:
| Current Year |
Previous Year |
|||
| Accounts payable | $918,000 | $217,000 | ||
| Current maturities of serial bonds payable | 540,000 | 540,000 | ||
| Serial bonds payable, 10% | 2,150,000 | 2,690,000 | ||
| Common stock, $1 par value | 90,000 | 110,000 | ||
| Paid-in capital in excess of par | 990,000 | 1,000,000 | ||
| Retained earnings | 3,430,000 | 2,720,000 | ||
The income before income tax expense was $941,500 and $823,800 for the current and previous years, respectively.
a. Determine the ratio of liabilities to stockholders' equity at the end of each year. Round to one decimal place.
| Current year | |
| Previous year |
b. Determine the times interest earned ratio for both years. Round to one decimal place.
| Current year | |
| Previous year |
c. The ratio of liabilities to stockholders' equity has................ and the number of times bond interest charges were earned has................... from the previous year. These results are the combined result of a..................... income before income taxes and....................... interest expense in the current year compared to the previous year.
In: Accounting
1. The taxi company you work for is considering buying a $50,000 car which they expect to last two years. Operating & Maintenance O&M costs are $12,000 per year. The car is expected to generate $32,000 in revenues per year. The tax rate is 30%. The company’s minimum acceptable rate of return (MARR) is 20%.
The taxi company uses a declining balance method for depreciation. The book balance of the car value at the end of year 0 is the price of the car. The book balance at the end of year n, Bn = Bn-1 – depreciation that year. The depreciation in a year is 40% of the book balance at the beginning of year, where the book balance at the beginning of year n is the book balance at the end of year n – 1. The salvage value is assumed to the book balance at the end of the investment.
a. Calculate the depreciation for each year.
b. Calculate the salvage value of the car.
c. Create the Income Statement for this investment.
d. Create the Statement of Cash Flows for this investment.
e. Use the NPV method to determine if the company should buy the car.
In: Finance
41. Apartment building manager reports revenue of $1,350 per month. He was 100% occupied for the year. He pays $70 per month for water & trash for the complex. His insurance was $1,050 for the year. His payment on the building were $8,400 for the year. $4,815 of it was interest. He was $50 in advertising expense for the year. Maintenance totaled for year totaled $925. He will be depreciating the property $2,320 for the year. He is also depreciating a Heat & Air unit at $815 for the year, which he bought and installed this year for the cost of $5,000. He has $5,300 in his business bank account and is holding deposits of $1,300 in escrow. The land is valued at $20,000. The building is valued at 116,000 with the land. Total depreciation on the building has been $25,000. He owns the local printer $65; the plumber, $420 and the local paper $50. He owes $73,500 on the property. Property taxes for the year are $1,725. The owner paid income tax of $12,500 this year.
The bottom line Annual Profit or Loss is
(A) Profit of $1,350.00 (B) Loss of $1,350.00 (C)Profit of $3,660.00 (D) None of the above
In: Accounting
Your company is deciding whether to invest in a new machine. The
new machine will increase cash flow by $325,000 per year. You
believe the technology used in the machine has a 10-year life; in
other words, no matter when you purchase the machine, it will be
obsolete 10 years from today. The machine is currently priced at
$1,750,000. The cost of the machine will decline by $105,000 per
year until it reaches $1,225,000, where it will remain.
If your required return is 13 percent, calculate the NPV if you
purchase the machine today. (Do not round intermediate
calculations and round your answer to 2 decimal places, e.g.,
32.16.)
NPV $
If your required return is 13 percent, calculate the NPV if you
wait to purchase the machine until the indicated year. (A
negative answer should be indicated by a minus sign. Do not round
intermediate calculations and round your answers to 2 decimal
places, e.g., 32.16.)
|
NPV |
|
|
Year 1 |
$ |
|
Year 2 |
$ |
|
Year 3 |
$ |
|
Year 4 |
$ |
|
Year 5 |
$ |
|
Year 6 |
$ |
In: Finance
|
Quad Enterprises is considering a new three-year expansion project that requires an initial fixed asset investment of $2.64 million. The fixed asset will be depreciated straight-line to zero over its three-year tax life, after which time it will be worthless. The project is estimated to generate $2,060,000 in annual sales, with costs of $755,000. The project requires an initial investment in net working capital of $280,000, and the fixed asset will have a market value of $270,000 at the end of the project. If the tax rate is 35 percent, what is the project’s Year 0 net cash flow? Year 1? Year 2? Year 3? (Do not round intermediate calculations. Enter your answers in dollars, not millions of dollars, e.g. 1,234,567. Negative amounts should be indicated by a minus sign.) |
| Years | Cash Flow |
| Year 0 | $ |
| Year 1 | $ |
| Year 2 | $ |
| Year 3 | $ |
|
If the required return is 13 percent, what is the project's NPV? (Do not round intermediate calculations and round your final answer to 2 decimal places, e.g., 32.16.) |
| NPV | $ |
In: Finance
Quad Enterprises is considering a new three-year expansion project that requires an initial fixed asset investment of $2.32 million. The fixed asset will be depreciated straight-line to zero over its three-year tax life, after which time it will be worthless. The project is estimated to generate $1.735 million in annual sales, with costs of $650,000. The project requires an initial investment in net working capital of $250,000, and the fixed asset will have a market value of $180,000 at the end of the project. The tax rate is 21 percent.
a. What is the project’s Year 0 net cash flow? Year 1? Year 2? Year 3? (Do not round intermediate calculations. Enter your answers in dollars, not millions of dollars, e.g., 1,234,567. A negative answer should be indicated by a minus sign.)
b. If the required return is 12 percent, what is the project's NPV? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
Year 0=
Year 1=
Year 2=
Year 3=
NPV=
In: Finance