EBK CONTEMPORARY FINANCIAL MANAGEMENT
14th Edition
ISBN: 9781337514835
Author: MOYER
Publisher: CENGAGE LEARNING - CONSIGNMENT
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Chapter 10, Problem 8QTD
Summary Introduction
To discuss: The impact of MACRS rules of depreciation on the acceptability of project having useful life of 10 years but 7 years classification of MACRS.
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What issue can occur in your model if the useful life of the new fixed assets is less than the remaining years in the forecast period?\\n\\nA. You can under depreciate the fixed assets\\n\\nB. You can over depreciate the fixed assets\\n\\nC. You will no longer be able to use a waterfall structure for your depreciation schedule
Which of the following research and development costs should always be capitalized?
a. costs of intangibles purchased from othersb. costs of materials, equipment, and intangibles with alternative future uses purchased fromothersc. costs of equipment with an expected life greater than three yearsd. costs of contract services purchased from others
Why may it be necessary to revise the estimated life of a plant asset? When the estimated life is revised, does it affect the amount of depreciation per year? Why or why not?
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EBK CONTEMPORARY FINANCIAL MANAGEMENT
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- Which of the following will maximize net income by minimizing depreciation expense in the first year of the asset’s life? a. Short service life, high residual value, and straightline depreciation.b. Long service life, high residual value, and straightline depreciation.c. Short service life, low residual value, and doubledeclining- balance depreciation.d. Long service life, high residual value, and doubledeclining- balance depreciation.arrow_forwardAn intangible asset with a finite useful life should be amortized over: - a period determined by management -it is not amortized, but checked for impairment annually -not amortized at all - it is expected useful lifetimearrow_forwardWhich depreciation method ignores residual value until the last year of depreciation? Why?arrow_forward
- Indicate whether each of the following statements is true or false. Depreciation, depletion, and amortization all involve the allocation of the cost of property, plant and equipment (PPE) to expense. Answer An accelerated depreciation method is appropriate when the asset’s economic usefulness is the same each year Answer The declining-balance method does not deduct the residual value in computing the depreciation base. Answerarrow_forwardYour company could use either straight line depreciation or the 3-year MACRS accelerated depreciation method. Discuss why a firm might prefer the 3-year MACRS accelerated depreciation method over the straight line depreciation method.arrow_forwardWhat are the estimates when calculating depreciation? Which estimates may be revised? What happens when you make a change in the estimate?How the change affects future calculations?Provide a simple example (if you cannot find one, make up your own)arrow_forward
- Which of the following depreciation methods can NOT depreciate an asset below its salvage value? a.Sum-of-the-years'-digits methodb.Units-of-production methodc.Straight-line methodd.All of these cannot depreciate below salvage valuearrow_forwardWhen determining the best time to replace an existing asset, for what reason would you need to use marginal analysis?a. To determine what the most appropriate tax rate for the project should beb. To estimate the cost of capital for the new assetc. To determine if the defender asset should be used beyond its ESL.d. To determine the length of time the challenger asset should be used once it is placed into service.arrow_forwardEvaluate the consequences of depreciation charged on the historical cost of the assets. I) depreciation is calculated on the original cost of fixed assets, the resulting figure under accumulated depreciation will be only the amount equivalent to the original costof the asset. II) If depreciation is calculated as per historical accounting, sufficient funds will not be available for assets' replacement when its life is over. III) the replacement cost of the asset will be more than the original cost of inflation so that replacement provisions made by the way of depreciation charge on the original cost will be insufficient. IV) the conventional system of accounts based on historical cost does not give a true and fair view of the business enterprise. a. Statements I, Il and IV b. Statements I, II II and IV C. Statements I, Il and II d. Statements II, IIl and IVarrow_forward
- In recording amortization of intangible asset, why isn't there an entry such as a credit to accumulated amortization? Why isn't it done the equivalent way we'd have for a fixed asset by keeping track of accumulated depreciation. Instead I notice the value of whatever the intangible asset is, is directly reduced by crediting the intangible asset When it's time to amortize. I'm guessing we could reduce the value of a fixed asset too directly. Just want to confirm that there hasn't been any recent changes to the idea of accumulated depreciation.arrow_forwardWhich of the following items is not a consideration when recording periodic depreciation on plant assets? Question 9 options: Salvage value Estimated useful life Cash needed to replace the plant asset Costarrow_forwardWhy this project used the straight-line depreciation method? If sinking fund method is use, is it going to be the same value, why or why not?arrow_forward
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