Kelli has just started a new company. She's heard that there are options in depreciation methods acceptable under Generally Accepted Accounting Principles. Her business is reliant on the latest technology and expects she'll have to continually upgrade to the newest version of equipment. She has reviewed the IRS depreciation rules which place her type of equipment with a 5-year useful life. She plans to use 5 years for her financial statements as well.

1. Discuss the use of Straight-line and Double Declining Balance depreciation including the impact to the income statement, balance sheet, and ROE.
2. Based on Kelli's business description what method would you advise her to use and why.
3. Assume that Kelli only purchases equipment when she opens her business at the beginning of year 1 and is only in business for 5 years. What is the difference in impact to ending retained earnings at the end of year 5 from using Straight-line or from using DDB?