# Depreciation, Investment Appraisal

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This two problems MUST be done in excel format. Please include explanation

1. Office equipment whose initial cost is $100,000 has an estimate actual life of 6 years , with an estimated salvage value of $10,000. Prepare tables listing the annual cost of depreciation and the book value at the end of each 6 years , based on the straight line , sum of years digits and MACRS depreciation.

2. A corporation with $7 million in annual taxable income is considering two alternatives:

Year Alternative1 Alternative2

0 -$10,000 -$20,000

1-10 $4500 $4500

11-20 $0 $4500

Both alternatives will be depreciated by straigh -line depreciation assuming a 10 year depreciable life and no salvage value.Neither alternative is to be replaced at the end of its useful life. If the corporation has a minimum atractive rate of retun of 10% after taxes , which alternative should i choose? Solve the problem by:

Present Worth Analysis

Annual Cash Flow Analysis

Rate of Retun Analyis

Future Worth Analyis

Benefit-Cost ratio analyis

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##### Solution Summary

Answers to two questions:

1) Depreciation calculation using straight line , sum of years digits and MACRS ;

2) Investment Appraisal using Present Worth Analysis, Annual Cash Flow Analysism Rate of Retun Analyis, Future Worth Analyis, Benefit-Cost ratio analyis.

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