A company recently purchased a machine and needs to decide what method of depreciation they will use. The machine cost $1,100,000 and has an expected useful life of ten years. At the end of ten years, it has an expected salvage value of $100,000. It is warranted by the manufacturer to have 20,000 hours of useful capacity in it, after 20,000 it is likely the machine will no longer be operable, although it will still have a salvage value of $100,000. After the first year of use, the machine used up 1,800 hours.

Your job is to calculate the first depreciation after the first year of its usage. You will use three different methods: 1) straight line, 2) double-declining balance, and 3) machine hours.

1. Using Excel, prepare a schedule showing the annual depreciation calculation for each method.

2. Prepare a written memo to the CFO with your recommendation of which method to use, and WHY you chose this method.