Question

Problems 7-12 use the following information:  A firm purchased a new piece of equipment with an estimated useful life of five years.  The cost of the equipment was $55,000. The salvage value is estimated to by $5,000 at the end of year 5.

Using the Double-Declining Balance method of depreciation, what is the value of "alpha"?

	A.	0.5
	B.	0.4
	C.	0.2
	D.	0.8
	E.	0.6

Answer 1

Answer = (B) 0.4

Explanation:-

=>Depreciation as per straight line method:-

=$55000-$5000/5 years

= $50000/5 years

= $10000

percentage wise = 10000/50000*100

= 20% or 0.2

=>as per double decline method the Depreciation rate = straight line method rate * 2

= 20% *2

= 40% or 0.4

here per dollar this rate is 0.4. In each year you will multiply beginning balance of asset by 0.4 to get depreciation.so the constant 0.4 is always multiplied with the beginning written down value of the asset. This constant 0.4 is indicated by alpha.