A plant manager for a large cable company knows that the real value of certain types of cable- maintenance equipment is more closely approximated when the equipment is depreciated linearly by the SL method rather than with the more rapid write-off method MACRS. Therefore, he keeps two sets of books, one using MACRS-5yr for taxes and a second using SL for equipment- management purposes. For an asset that has a first cost of $80.000, a depreciable life of 5 years, and a salvage value equal to 25% of the first cost, determine the difference in the book values shown in the two sets of books at the end of year 4, and identify the method that has a lower BV after 4 years.

A plant manager for a large cable company knows that the real value of certain types of cable- maintenance equipment is more closely approximated when the equipment is depreciated linearly by the SL method rather than with the more rapid write-off method MACRS. Therefore, he keeps two sets of books, one using MACRS-5yr for taxes and a second using SL for equipment- management purposes. For an asset that has a first cost of $80.000, a depreciable life of 5 years, and a salvage value equal to 25% of the first cost, determine the difference in the book values shown in the two sets of books at the end of year 4, and identify the method that has a lower BV after 4 years.

Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)

14th Edition

ISBN:9781305506381

Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Publisher:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Chapter17: Long-term Investment Analysis

Section: Chapter Questions

Problem 2E

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