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Use these data to solve the different depreciation method: DB (declining balance), DDB (Double declining balance), SLN (straight line) and SYD (Sum of year digits), (each method in a different page). Also compute the MACRS method. Decide the best alternative (depreciation method) by comparing the after cash flows using the present worth method.

Comparison of Taxes and Present Worth of Taxes for Different Depreciation Methods
		Classical Straight Line			Classical Double Declining Balance			MACRS
(1)	(2)	(3)	(4)	(5)= 0.35 (4)	(6)	(7)	(8)= 0.35 (7)	(9)	(10)	(11)= 0.35 (10)
Year t	CFBT, S	Dt S	TI, S	Taxes, S	Dt S	TI, S	Taxes, S	Dt S	TI, S	Taxes, S
1	+20,000	10,000	10,000	3,500	20,000	0	0	10,000	10,000	3,500
2	+20,000	10,000	10,000	3,500	12,000	8,000	2,800	16,000	4,000	1,400
3	+20,000	10,000	10,000	3,500	7,200	12,800	4,480	9,600	10,400	3,640
4	+20,000	10,000	10,000	3,500	4,320	15,680	5,488	5,760	14,240	4,984
5	+20,000	10,000	10,000	3,500	2,592	17,408	6,093	5,760	14,240	4,984
6	+20,000	0	20,000	7,000	0	20,000	7,000	2,880	17,120	5,992
Totals		50,000		24,500	46,112		25,861*	50,000		24,500
PW tax				18,386			18,549			18,162
*Larger	than	other	values	since	there	is an	implied	salvage	value of	$3888 not recovered.

Use Microsoft Excel spreadsheet, to calculate the depreciation charge for different depreciation methods, and to compute the book value of different assets using different depreciation methods. Also, to determine the best alternative using the present worth of after tax cash flows (ATCF) and to perform a sensitivity analysis.

Questions:

(1) If revenues decrease each year by a constant of $20,000, for example in year 1 (200,000), in year 2 (180,000), etc., will your decision of the best depreciation method change? Why or why not? Construct another set of five (5) Microsoft Excel sheets to answer this question.

(2) If revenues increase each year by a constant of $20,000, for example in year 1 ($200,000), in year 2 ($220,000), etc, will your decision of the best depreciation method change? Why or why not? Construct another set of five (5) Microsoft Excel sheets to answer this question.

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