3. A large profitable corporation purchased a small jet plane for use by its exe

Question

3. A large profitable corporation purchased a small jet plane for use by its executives. The plane cost $3,500,000. It has a depreciation life of seven years and $0 salvage value. Develop the complete depreciation schedule for the plane showing year-by-year depreciation charges and book values, and determine the present worth of all the depreciation charges assuming an interest rate of 6% per year, using: (a) the DDB method with switch to SL, (b) MACRS depreciation.

Present your depreciation schedules in the tabular format

Explanation / Answer

Value Dep Remaining value PV@6% Cost 3,500,000 3,500,000 1. DDB Method Year1 1,000,000 2,500,000      2,358,491 0.142857 0.142857 Year2 714,286 1,785,714      1,589,279 28.57% Year3 510,204 1,275,510      1,070,943 interest rate 6% Year4 364,431 911,079          721,660 Year5 260,308 650,771          486,294 Year6 185,934 464,836          327,691 Year7 132,810 332,026          220,816 Cost 3,500,000 2. MACRS Method Rate PV@6% Year1 14.29%                    500,150          471,840 Year2 24.49%                    857,150          857,150 Year3 17.49%                    612,150          612,150 Year4 12.49%                    437,150          437,150 Year5 8.93%                    312,550          312,550 Year6 8.92%                    312,200          312,200 Year7 8.93%                    312,550          312,550

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