Three methods of depreciation

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Reference no: EM132023897

1. Sports Company limited built and equipped a $4,800,000 plant and brought into operations early in year 1. Earnings of the company (before depreciation and income taxes) is estimated at $2,200,000 in year 1, $ 2,500,000, in year 2, $2,700,000 in year 3, $3,500,000 in year 4, $ 3,900,000 in year 5, and $ 4,000,000 in year 6. The company can use straight line method, double declining balance method, or sum of the years’ digits depreciation method for the new plant. Assume the plants’ useful life is 9 years (salvage value $ 300,000) and Income tax rate of 45%.

Compute the separate effect that each of these three methods of depreciation would have on

A. Depreciation (all three methods)

B. Income taxes

C. Net Income

D. Cash Flow (assumed equal to net income before depreciation) (all the four in sheet1)

2. Show the graph for A, B, C, and D. (One graph for depreciation, Income tax, etc.) in sheet 2

3. Comment on Items A to D in sheet 3Sports Company limited built and equipped a $4,800,000 plant and brought

Reference no: EM132023897

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