A company purchased a Wheel Loader 5 years ago with an initial value of $39,500, a salvage value of $18,500, an annual repair and maintenance cost of $5,000, a storage cost of $7500, a fuel cost of $1250 and estimated life of 10 years. Calculate the machine's book value now (today) using the straight-line, sum-of-years digits, and sinking fund depreciation methods. Assume an interest rate of 2%. Also, answer the following question: 1. Will the three methods give the same results? Why? 2. Which method gives higher book value? 3. How is the book value calculation process different from the ownership?
A company purchased a Wheel Loader 5 years ago with an initial value of $39,500, a salvage value of $18,500, an annual repair and maintenance cost of $5,000, a storage cost of $7500, a fuel cost of $1250 and estimated life of 10 years. Calculate the machine's book value now (today) using the straight-line, sum-of-years digits, and sinking fund depreciation methods. Assume an interest rate of 2%. Also, answer the following question: 1. Will the three methods give the same results? Why? 2. Which method gives higher book value? 3. How is the book value calculation process different from the ownership?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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A company purchased a Wheel Loader 5 years ago with an initial value of $39,500, a salvage value of $18,500, an annual repair and maintenance cost of $5,000, a storage cost of $7500, a fuel cost of $1250 and estimated life of 10 years. Calculate the machine's book value now (today) using the straight-line, sum-of-years digits, and sinking fund
1. Will the three methods give the same results? Why?
2. Which method gives higher book value?
3. How is the book value calculation process different from the ownership?
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