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A) Statement showing switchover from declining balance method to straight-line method $ Cost of the asset Declining Balance Rate Useful life of asset Salvage value Depreciation rate 1,60,000.00 125% 12.00 25,000.00 10.42% (125%/12 years) Amounts in $ $ Year Adjusted Base Declining Balance Depreciation Straight line Depreciation Depreciation Expense 1 2 3 4 5 6 1,35,000.00 1,20,937.50 1,08,339.84 97,054.44 86,944.61 77,887.88 69,774.56 62,506.37 55,995.29 50,162.45 44,937.19 40,256.24 14,062.50 12,597.66 11,285.40 10,109.84 9,056.73 8,113.32 7,268.18 6,511.08 5,832.84 5,225.26 4,680.96 4,193.36 11,250.00 10,994.32 10,833.98 10,783.83 10,868.08 11,126.84 11,629.09 12,501.27 13,998.82 16,720.82 22,468.60 40,256.24 14,062.50 12,597.66 11,285.40 10,783.83 10,783.83 10,783.83 10,783.83 10,783.83 10,783.83 10,783.83 10,783.83 10,783.83 7 8 9 10 11 12 The depreciation under Straight-line method is more in 4th year hence from 4th year switching from declining balance method to straight-line method will happen. B) Statement showing switchover from declining balance method to straight-line method Cost of the asset Declining Balance Rate Useful life of ass Salvage value Depreciation rate $ 1,60,000.00 125% 12 years $ 10,000.00 10.42% (125%/12 years) Amounts in $ Year Adjusted Base Dedining Balance Depreciation Straight line Depreciation Depreciation Expense 1 2 3 4. 5 6 1,50,000.00 1,34,375.00 1,20,377.60 1,07,838.27 96,605.12 86,542.08 77,527.28 69,451.53 62,216.99 55,736.05 49,930.22 44,729.15 15,625.00 13,997.40 12,539.33 11,233.15 10,063.03 9,014.80 8,075.76 7,234.53 6,480.94 5,805.84 5,201.06 4,659.29 12,500.00 12,215.91 12,037.76 11,982.03 12,075.64 12,363.15 12,921.21 13,890.31 15,554.25 18,578.68 24,965.11 44,729.15 15,625.00 13,997.40 12,539.33 11,982.03 11,982.03 11,982.03 11,982.03 11,982.03 11,982.03 11,982.03 11,982.03 11,982.03 7 8 9 10 11 12 Even though there is a change in salvage value but the switching from Declining Balance method to Straight line method there is no change in the year of switching. Write your name and ID. Q1. A company purchases an equipment for $160,000 to be used for 12 years. a) Construct the table of the switchover method. Use 125% DB and market value of $25,000 at the EOY 12 (1.25 marks). b) Construct the table of the switchover method. Use 125% DB and market value of $10,000 at the EOY 12 (1.25 marks). You are required to show all calculations. Dropping only the answer in the table is not enough to get the full credits. Clearly, show where the switchover occurs. Q2. Based on Q1 (a) above, construct the ATCF if $40,000 is expected to be obtained annually from operating this equipment. a) Use the Corporate Federal Income Tax Rate shown in Slide # 5, Lecture 11 to construct the ATCF and calculate the PW for a MARR=10% (1.25 marks). b) Use a fixed 30% income tax rate to construct the ATCF and calculate the PW for a MARR=10% (1.25 marks). You are required to show all calculations. Dropping only the answer in the tables is not enough to get the full credits

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