2. XYZ Machining Inc. is considering the purchase of a small truck car at a cost

Question

2. XYZ Machining Inc. is considering the purchase of a small truck car at a cost of $18,000. The truck is expected to have a service life of eight years and a salvage value of $2,500. Develop the complete depreciation schedule for the truck showing year-by-year depreciation charges and book values, and determine the present worth of all the depreciation charges assuming an interest rate of 10% per year, using: (a) MACRS depreciation, (b) DDB depreciation.

[Answers: (a) 13,919 (b) 12,257]

Present your depreciation schedules in the tabular format

Explanation / Answer

MACR depreciation

Workings

DDB

Rate of depreciation =1/8 *2 =25%

Year Openning Book value Depreciation Closing Book Value 1 18000 3600 14400 2 14400 5760 8640 3 8640 3456 5184 4 5184 2074 3110.4 5 3110.4 2074 1036.8 6 1036.8 1037 0

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