The manager of a plant that manufactures stepper drives knows that Modified Accelerated Cost Recovery System (MACRS) and Double Declining Balance (DDB) are both accelerated depreciation methods, but out of curiosity, he wants to determine which one offers faster write-off in the first 3 years for equipment that has a first cost of $500,000, a 5-year life/recovery period, and a $40,000 salvage value. Determine which method provides a faster write-off for 3 years (i.e., yields lower book-value in year 3) and by how much? (Note: Use GDS 5-year recovery period for MACRS) O DDB provides faster write-off for 3 years (i.e., DDB provides lower book value in year 3) and difference in book values is $56,400 MACRS provides faster write-off for 3 years (i.e., MACRS provides lower book value in year 3) and difference in book values is $56,400 None of the above DDB provides faster write-off for 3 years (i.e., DDB provides lower book value in year 3) and difference in book values is $71,600 O MACRS provides faster write-off for 3 years (i.e., MACRS provides lower book value in year 3) and difference in book values is $71,600
The manager of a plant that manufactures stepper drives knows that Modified Accelerated Cost Recovery System (MACRS) and Double Declining Balance (DDB) are both accelerated depreciation methods, but out of curiosity, he wants to determine which one offers faster write-off in the first 3 years for equipment that has a first cost of $500,000, a 5-year life/recovery period, and a $40,000 salvage value. Determine which method provides a faster write-off for 3 years (i.e., yields lower book-value in year 3) and by how much? (Note: Use GDS 5-year recovery period for MACRS) O DDB provides faster write-off for 3 years (i.e., DDB provides lower book value in year 3) and difference in book values is $56,400 MACRS provides faster write-off for 3 years (i.e., MACRS provides lower book value in year 3) and difference in book values is $56,400 None of the above DDB provides faster write-off for 3 years (i.e., DDB provides lower book value in year 3) and difference in book values is $71,600 O MACRS provides faster write-off for 3 years (i.e., MACRS provides lower book value in year 3) and difference in book values is $71,600
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:The manager of a plant that manufactures stepper drives knows that Modified
Accelerated Cost Recovery System (MACRS) and Double Declining Balance (DDB)
are both accelerated depreciation methods, but out of curiosity, he wants to
determine which one offers faster write-off in the first 3 years for equipment that
has a first cost of $500,000, a 5-year life/recovery period, and a $40,000 salvage
value. Determine which method provides a faster write-off for 3 years (i.e., yields
lower book-value in year 3) and by how much? (Note: Use GDS 5-year recovery
period for MACRS)
DDB provides faster write-off for 3 years (i.e., DDB provides lower book value in
year 3) and difference in book values is $56,400
MACRS provides faster write-off for 3 years (i.e., MACRS provides lower book
value in year 3) and difference in book values is $56,400
None of the above
DDB provides faster write-off for 3 years (i.e., DDB provides lower book value in
year 3) and difference in book values is $71,600
MACRS provides faster write-off for 3 years (i.e., MACRS provides lower book
value in year 3) and difference in book values is $71,600
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