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0.10 Projecting Property, Plant, and Equipment. LO 10-2 Intel is a global leader in manufacturing microprocessors, which is very capital-intensive. The production processes in microprocessor

0.10

Projecting Property, Plant, and Equipment.

  1. LO 10-2

    Intel is a global leader in manufacturing microprocessors, which is very capital-intensive. The production processes in microprocessor manufacturing require sophisticated technology, and the technology changes rapidly, particularly with each new generation of microprocessor. As a consequence, production and manufacturing assets in the microprocessor industry tend to have relatively short useful lives. Assume the following hypothetical information relates to Intels property, plant, and equipment for 2021 and 2022:

    Required

    Assume that Intel depreciates all property, plant, and equipment using the straight-line depreciation method and zero salvage value. Assume that Intel spends $6,000 million on new depreciable assets in Year +1 and does not sell or retire any property, plant, and equipment during Year +1.

    1. Compute the average useful life (in years, rounded to two decimals) that Intel used for depreciation in 2022.

    2. Project total depreciation expense for Year +1 using the following steps:

      1. Project depreciation expense for Year +1 on existing property, plant, and equipment at the end of 2022.

      2. Project depreciation expense on capital expenditures in Year +1 assuming that Intel takes a full year of depreciation in the first year of service.

      3. Sum the results of (1) and (2) to obtain total depreciation expense for Year +1.

    3. Project the Year +1 ending balance in property, plant, and equipment, both at cost and net of accumulated depreciation.

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