Astro-Satellite aerospace company is considering buying a new advanced computer

Question

Astro-Satellite aerospace company is considering buying a new advanced computer (and peripheral equipment) for 200,000. It is estimating its useful lifetime to be 6 years. For internal auditing purposes its Salvage value will be 30,000. Depreciate the equipment using declining balance (DB) so that in 6 years the equipment will have a book value equal to the Salvage Value. Show the book value and depreciation for each year through the 6'" year. Repeat the calculation using the MACRS method (lust show the depreciation in this part.)

Explanation / Answer

cost of new advanced computer        200,000 useful life 6 years salvage value           30,000                    0.14        170,000                    0.85 Rate of depreciation 27%        200,000 Depreciation first year           54,000        146,000 Depreciation second year           39,420        106,580 Depreciation third year           28,777           77,803 Depreciation fourth year           21,007           56,796 Depreciation fifth year           15,335           41,461 Depreciation sixth year           11,195 WDV at the end of sixth year           30,267 Under MACRS: 5-year Computer 1 20% 2 32% 3 19% 4 12% 5 12% 6 6% 100% Depreciation Year amount 1           40,000 (200000*20%) 2           64,000 (200000*32%) 3           38,400 4           23,040 5           23,040 6           11,520 Total depreciation        200,000

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