A plant manager for a large cable company knows that the real value of certain types of cable- maintenance equipment is more closely approximated when the equipment is depreciated linearly by the SL method rather than with the more rapid write-off method MACRS. Therefore, he keeps two sets of books, one using MACRS-5yr for taxes and a second using SL for equipment- management purposes. For an asset that has a first cost of $80.000, a depreciable life of 5 years, and a salvage value equal to 25% of the first cost, determine the difference in the book values shown in the two sets of books at the end of year 4, and identify the method that has a lower BV after 4 years.

A plant manager for a large cable company knows that the real value of certain types of cable- maintenance equipment is more closely approximated when the equipment is depreciated linearly by the SL method rather than with the more rapid write-off method MACRS. Therefore, he keeps two sets of books, one using MACRS-5yr for taxes and a second using SL for equipment- management purposes. For an asset that has a first cost of $80.000, a depreciable life of 5 years, and a salvage value equal to 25% of the first cost, determine the difference in the book values shown in the two sets of books at the end of year 4, and identify the method that has a lower BV after 4 years.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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