Question

Problem 11-31: Use the data from Problem 31 to not only calculate the depreciation schedule four ways, but also find the After Tax Cash Flows (ATCE) and calculate the Net Present Value (NPV) and Rate of Return (IRR) for each different method. The spreadsheet is organized to help you and the BTCF is $5000 (note: earlier version of the spreadsheet used a BTCF of $4000, so check that column after you download the template). Note that if you depreciate down below the book value you have to "recapture" the untaxed portion of the salvage value in the last year and pay taxes on it. You can tell this is the case if the book value at the end is below the salvage value. That happens frequently with some of the depreciation methods. You will see examples in the book.

Answer 1

Problem 11-31 A) In Straight Line Method the Calculation will be like

Annual Depreciation Expense= (Asset Value - Residual Value/ Goods Sold) / Useful life of an asset

($20,000-$3,000)=$17,000/8= $2,125

1st year that will be $20,000-$2,125=$17,875

2nd year will be $17,875-$2,125=$15,750

and after 8 year the value will be arise $3,000 which is sold value of the asset

Problem 11-31 B) In Double Declining Balance Depreciation calculation will be like

the depreciation method will be like straight line method but the percentage will be double in that method i.e.

In straight Line the depreciation value is $2,125 now in this method it will get double like

1st Year ($20,000-$4,250)=Book Value $15,750

2nd year will be ($15,750-$3,346)=Book Value $12,404 Depreciation percentage 21.25%

3rd year ($12,404-$2,635)= Book Value $9,769 Depreciation Percentage 21.25%

Problem 11-31 C) 100% Bonus Depreciation will be calculated like

In this formula will directly deduct the amount like

Assset value$20,000 PW is 15%

So the asset value asset value will be $20,000*15/100= $3,000

Problem 11-31 D) MACRS stand for Modified Accelerated Cost Recovery System

calculation will be like

1st year 14.29%

2nd year 24.49%

3rd year 17.49%

4th year 12.49%

5th year 8.93%

6th year 8.92%

7th year 8.93%

8th year 4.46%