Knowledge of the time value of money is necessary for this problem (see Appendix A). Kimberly Sisters purchased equipment for $80,000 on January 1, 2017. Kimberly can use the double-declining balance method for tax purposes but does not understand why it should be preferred over straight-line. The following information is available:
Estimated useful life .....................................................................................4 years
Estimated salvage value ..............................................................................$20,000
Expected sales over each of the next four years ...................................$100,000
Expected operating expenses (excluding depreciation)
over each of the next four years ...............................................................$60,000
Tax rate (percent of net income) ..........................................................35 percent

REQUIRED:
a. Which of the two methods will give rise to the greater amount of depreciation over the life of the equipment? Support your answer with computations.
b. Which of the two methods will result in the payment of less taxes over the life of the equipment? Support your answer with computations.
c. Why is the double-declining-balance method preferred for tax purposes?
d. Assume a discount rate of 10 percent. In present value terms, what is the advantage of using double declining- balance instead of straight-line?