Textbook Problem

Depreciation and Rate of Return Burrell Company purchased a machine for $20,000 on January 2, 2019. 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 $10,000 each year. The tax rate is 21%.

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. (Round all calculations to the nearest dollar and the rate of return to two decimals.)