The table given below lists the relevant cost items for a specific system purchase. Theoperating expenses for the new system are $10,000 per year, and the useful life of thesystem is expected to be five years. The salvage value for depreciation purposes is equalto 25% of the hardware cost.Cost ItemCostHardware$160,000Training$15,000Installation$15,000a) What is the Book Value (BV) of the device at the end of year three if the Straight Line(SL) depreciation method is used?b) Suppose that after depreciating the device for two years with the SL method, the firmdecides to switch to the double declining balance depreciation method for theremainder of the device's life (the remaining three years). What is the device's BV at theend of four years?

Answer a) Basic cost =$160000+$15000+$15000=$190000Salvage value =$160000 x 25%=$40000Depreciation…

The table given below lists the relevant cost items for a specific system purchase. The operating expenses for the new system are $10,000 per year, and the useful life of the system is expected to be five years. The salvage value for depreciation purposes is equal to 25% of the hardware cost. Cost Item Cost Hardware $160,000 Training Installation $15,000 $15,000 a) What is the Book Value (BV) of the device at the end of year three if the Straight Line (SL) depreciation method is used? b) Suppose that after depreciating the device for two years with the SL method, the firm decides to switch to the double declining balance depreciation method for the remainder of the device's life (the remaining three years). What is the device's BV at the end of four years?

The table given below lists the relevant cost items for a specific system purchase. The operating expenses for the new system are $10,000 per year, and the useful life of the system is expected to be five years. The salvage value for depreciation purposes is equal to 25% of the hardware cost. Cost Item Cost Hardware $160,000 Training Installation $15,000 $15,000 a) What is the Book Value (BV) of the device at the end of year three if the Straight Line (SL) depreciation method is used? b) Suppose that after depreciating the device for two years with the SL method, the firm decides to switch to the double declining balance depreciation method for the remainder of the device's life (the remaining three years). What is the device's BV at the end of four years?

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter9: Capital Budgeting And Cash Flow Analysis

Section9.A: Depreciation

Problem 1P

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