Depreciation and Rate of Return Burrell Company purchased a machine for $44,000 on January 2, 2016. The machine has an estimated service life of 5 years and a zero estimated residual value. The asset earns income before depreciation and income taxes of $22,000 each year. The tax rate is 25%. Required: Compute the rate of return earned (on the average net asset value) by the company each year of the asset's life under the straight-line and the double-declining-balance depreciation methods. Assume that the machine is the company's only asset.
Burrell Company purchased a machine for $44,000 on January 2, 2016. The machine has an estimated service life of 5 years and a zero estimated residual value. The asset earns income before depreciation and income taxes of $22,000 each year. The tax rate is 25%.
Required:
Compute the rate of return earned (on the average net asset value) by the company each year of the asset's life under the straight-line and the double-declining-balance depreciation methods. Assume that the machine is the company's only asset.
Straight-line method. Do not round intermediate calculations. Round final answers to two decimal places.
2016 25 %
2017 32.14 %
2018 45 %
2019 75 %
2020 225 %
Double-declining-balance depreciation method. Do not round intermediate calculations. Round final answers to two decimal places.
2016 9.38 %
2017 40.63 %
2018 92.71 %
2019 179.51 %
2020 ????
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