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Which method would the business prefer for tax purposes

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Reference no: EM132587612

The owner of the local Kwik Copy franchise is considering investing in a new colour copier. The following information is related to the acquisition and operation of the copier:

Initial investment $50,000

Salvage value $5,000

Useful life 6 years

Annual revenue attributable to the investment $21,000

Annual operating expenses, excluding depreciation, associated with the investment $7,000

The copier will be in use for:

2880 hours in year 1

2550 hours in each of years 2 and 4

2190 hours in year 5

1460 hours in each of years 3 and 6.

When you have finished your worksheet, answer the following questions

Question 1. Which depreciation method produces the highest profit in year 1? In year 6? If it's not the same method for each year why not?

Question 2. Which method would the business prefer for tax purposes? Why?

Question 3. Which method would the business prefer for reporting to bankers and creditors? Why? What if the business wanted to change methods after two years

Reference no: EM132587612

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