Question
Entel 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
Entel 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 selected information relates to Entels property, plant, and equipment for 2019 and 2020:
Entel (amounts in millions of dollars) | 2019 | 2020 |
Property, plant, and equipment, at cost | $85,951 | $90,490 |
Accumulated depreciation | $(54,792) | $(57,066) |
Property, plant, and equipment, net | $31,159 | $33,424 |
Depreciation expense | $9,228 | |
Capital expenditures, net | $8,146 |
Assume that Entel depreciates all property, plant, and equipment using the straight-line depreciation method and zero salvage value. Assume that Intel spends $10,000 million on new depreciable assets in Year +1 and does not sell or retire any property, plant, and equipment during Year +1. a. Compute the average useful life (in years, rounded to two decimals) that Intel used for depreciation in 2020. b. 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 2020. Do not enter in the answer form. 2. Project depreciation expense on capital expenditures in Year +1 assuming that Entel takes a full year of depreciation in the first year of service. Do not enter in the answer form. 3. Sum the results of (1) and (2) to obtain total depreciation expense for Year +1. Enter this amount (in millions of dollars) in the answer form. c. Project the Year +1 ending balance (in millions of dollars) in property, plant, and equipment, both at: 1. Cost, and 2. Net of accumulated depreciation.
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