1. Assume that at least some rewards for the management team (and, hence, also other employees) are based on performance measured in terms of accounting income and returns on net assets. Also assume that all of these airlines are growing, that is, they are adding to their fleet size.

What are the behavioral implications of each of the following three depreciation-related accounting policy choices: (1) depreciation patterns (i.e., straight-line vs. accelerated); (2) estimated useful lives; and (3) residual values? Consider, at a minimum, the effects of each of these choices on decisions regarding:

1. Replacement of aircraft in service;
2. Pricing, assuming that prices are at least somewhat dependent on costs;
3. Evaluations of routes or lines of business;
4. Evaluations of managers, assuming that negotiated budgets provide the primary standard of performance.50%