Suppose you manage a manufacturing company that just purchased a metal pressing machine for $75,000. You expect the machine to last 25 years. Depending on the size of your company, having such a large expense on your books for one period will make short and long-term trends difficult to detect. Instead, you spread the expense out over the 25 year lifetime of the machine. This expensing process is depreciation. As part of this process, the value of the machine in your balance statement is reduced each year by the amount of depreciation. This is the book value of the asset. Included is a spreadsheet that shows the book value using three different depreciation methods

1. Which method(s) is/are result in linear decay in the book value? What about exponential decay? What about neither? Justify your response.

2. For the method that results in linear decay in book value:

a) Find the slope. Show your work.

b) Write the equation for the book value. Show your work.

3. For the method that results in exponential decay in book value:

a) Find the percentage rate of change. Show your work.

b) Write the equation for the book value. Show your work.

4. As an expense, depreciation can be deducted from your income for tax purposes. Describe the tax advantages or disadvantages of each method:

Method 1:

Method 2:

Method 3:

. ON 1 Year 2 0 3 1 4 2 5 3 6 7 5 3 9 9 7 10 8 11 12 10 13 11 14 12 15 13 16 14 17 15 18 16 19 17 18 21 19 22 20 23 21 22 25 23 26 24 27 25 B c D Book Value: Book Value: Book Value: Depreciation Method 1 Depreciation Method 2 Depreciation Method 3 $ 75,000.00 $ 75,000.00 $ 75,000.00 $ 64,500.00 $ 72,200.00 $ 69,461.54 $ 55,470.00 $ 69,400.00 $ 64,144.62 $ 47,704.20$ 66,600.00 S 59,049.23 $ 41,025.61 $ 63,800.00 $ 54,175.38 $ 35,282.03 $ 61,000.00 S 49,523.08 $ 30,342.54 $ 58,200.00 $ 45,092.31 26,094.59 $ 55,400.00 $ 40,883.08 $ 22,441.34 $ 52,500.00 S 36,895.38 $ 19,299.56 $ 49,800.00 S 33,129.23 $ 16,597.62 $ 17,000.00 $ 29,584.62 14,273.95$ 44,200.00 $ 26,261.54 $ 12,275.60 $ 41,400.00 $ 23,160.00 10,557.01 $ 38,600.00 $ 20,280.00 9,079.03s 35,800.00 $ 17,621.54 $ 7,807.97 $ 33,000.00 $ 15,184.62 $ 6,711.85$ 30,200.00 S 12,969.23 $ 5,774.77 $ 27,400.00 S 10,975.38 $ 4,966.30 $ 24,600.00 $ 9,203.08 $ 4,271.02 $ 21,800.00 $ 7,652.31 S 3,673.08$ 19,000.00 S 6,323.08 $ 3,158.85$ 16,200.00 S 5,215,38 S 2,716.61 $ 13,100.00 S 1,329.23 $ 2,336.28 $ 10,600.00 S 3,664.62 $ 2,009.20$ 7,800.00 S 3,221.54 $ 1,727.92 $ 5,000.00 S 3,000.00 Uuuuuu 20 21