Depreciation and Rate of Return Burrell Company purchased a machine for $33000 o
ID: 2485758 • Letter: D
Question
Depreciation and Rate of Return
Burrell Company purchased a machine for $33000 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 $16500 each year. The tax rate is 20%.
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 answer to two decimal places.
Double-declining-balance depreciation method. Do not round intermediate calculations. Round final answer to two decimal places.
Explanation / Answer
Straight line method:
Double declining method:
Value of machine 33,000 Year Depreciation EBITDA Profit before tax Tax @20% Profit after tax Rate of return 1 6,600 16,500 9,900 1980 7,920 24.0% 2 6,600 16,500 9,900 1980 7,920 24.0% 3 6,600 16,500 9,900 1980 7,920 24.0% 4 6,600 16,500 9,900 1980 7,920 24.0% 5 6,600 16,500 9,900 1980 7,920 24.0%Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.