Q2. A medium size profitable corporation is considering the purchase of a $5000 truck for use by the shipping and receiving department. During the truck's 5 years useful life, it is estimated that the firm will save $800 per year after all the costs of owning and operating the truck have been paid. Truck salvage values is estimated at $700. a) What is the before-tax rate of return b) What is the after-tax rate of return on the capital expenditure? Assume straight line depreciation. the voarly danreeiation ollowanga s ond book aDO DO
Q2. A medium size profitable corporation is considering the purchase of a $5000 truck for use by the shipping and receiving department. During the truck's 5 years useful life, it is estimated that the firm will save $800 per year after all the costs of owning and operating the truck have been paid. Truck salvage values is estimated at $700. a) What is the before-tax rate of return b) What is the after-tax rate of return on the capital expenditure? Assume straight line depreciation. the voarly danreeiation ollowanga s ond book aDO DO
Chapter9: Capital Budgeting And Cash Flow Analysis
Section: Chapter Questions
Problem 4P
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Depreciation Methods
The word "depreciation" is defined as an accounting method wherein the cost of tangible assets is spread over its useful life and it usually denotes how much of the assets value has been used up. The depreciation is usually considered as an operating expense. The main reason behind depreciation includes wear and tear of the assets, obsolescence etc.
Depreciation Accounting
In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.
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