The manager of a plant that manufactures stepper drives knew that MACRS and DDB were both accelerated depreciation methods, but out of curiosity, he wanted to know which one would provide the faster write-off in the first 3 years for equipment that has a first cost of $300,000, a 5-year life, and a $60,000 salvage value. (a) Use hand calculations to determine which method yields the lower book value and by how much. (b) Develop the complete depreciation schedules on a spreadsheet and use them to answer the questions above. (c) Using your spreadsheet results, explain what happened to the DDB depreciation amounts for years 4 and 5.
The manager of a plant that manufactures stepper drives knew that MACRS and DDB were both accelerated depreciation methods, but out of curiosity, he wanted to know which one would provide the faster write-off in the first 3 years for equipment that has a first cost of $300,000, a 5-year life, and a $60,000 salvage value. (a) Use hand calculations to determine which method yields the lower book value and by how much. (b) Develop the complete depreciation schedules on a spreadsheet and use them to answer the questions above. (c) Using your spreadsheet results, explain what happened to the DDB depreciation amounts for years 4 and 5.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
The manager of a plant that manufactures stepper drives knew
that MACRS and DDB were both accelerateddepreciation methods, but out of curiosity, he
wanted to know which one would provide the faster write-off in the first 3 years for equipment
that has a first cost of $300,000, a 5-year life, and a $60,000 salvage value.
(a) Use hand calculations to determine which method yields the lower book value and by how
much.
(b) Develop the complete depreciation schedules on a spreadsheet and use them to answer the
questions above.
(c) Using your spreadsheet results, explain what happened to the DDB depreciation amounts for
years 4 and 5.
that MACRS and DDB were both accelerated
wanted to know which one would provide the faster write-off in the first 3 years for equipment
that has a first cost of $300,000, a 5-year life, and a $60,000 salvage value.
(a) Use hand calculations to determine which method yields the lower book value and by how
much.
(b) Develop the complete depreciation schedules on a spreadsheet and use them to answer the
questions above.
(c) Using your spreadsheet results, explain what happened to the DDB depreciation amounts for
years 4 and 5.
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