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17. Hamid Construction Inc, a profitable company, built and equipped a $3,000 plant brought into operation early in Year 1. Earnings of the company (before
17. Hamid Construction Inc, a profitable company, built and equipped a $3,000 plant brought into operation early in Year 1. Earnings of the company (before depreciation on the new plant and before income taxes) is projected at: $1,500 in Year 1; $2,000 in Year 2; $2,500 in Year 3; $3,000 in Year 4 and $3,500 in Year 5. The company can use double declining-balance, or sum-of-the-years'-digits depreciation for the new plant. Assume the plant's useful life is 5 years (with no salvage value) and an income tax rate of 50%. Required: Compute for the first three years only, the separate effect that each of these two methods of depreciation would have on: a. Depreciation b. Income taxes c. Net income d. Cash flow (assumed equal to net income before depreciation)
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