Monster inc. has purchased a building for $5,000,000. The firm has two appraisals performed, with the first appraisal estimating that the land should have been 20% of the purchase price allocated to it, While the second appraisal suggest that 40% of the purchase price should be allocated to it. It is further estimated that the building has a 20 year useful life with a $50,000 salvage value. The CEO compensation (more specifically for his bonus) is based on firm's performance, as measured by return on assets and net income. The board of directors is concerned that the CEO may be opportunistically selecting a depreciation method that will increase his compensation in the near term, as opposed to choosing a depreciation method that more accurately matches the cost of the assets over its revenue producing life.

1.If the firm chose to use straight line depreciation how would that effect net income

in year 4 if the building is sold at the beginning of the 4th year relative if

it uses double declining balance? (Can provide a conceptual comparison instead

of numbers, but specific numbers would help)

2.If the firm chose to use straight line depreciation how would that effect net income

in year 21 if the building is sold at the beginning of the 21st year relative

if it instead uses double declining balance? (Can provide a conceptual

comparison instead of numbers, but specific numbers would help)