You are a financial analyst for Ford Motor Company and have been asked to determine the impact of…
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You are a financial analyst for Ford Motor Company and have been asked to determine the impact of alternative depreciation methods. For your analysis, you have been asked to compare methods based on a machine that cost $106,000. The estimated useful life is 13 years, and the estimated residual value is $2,000. The machine has an estimated useful life in productive output of 200,000 units. Actual output was 20,000 in year 1 and 16,000 in year 2. Required: 1. For years 1 and 2 only, prepare separate depreciation schedules assuming: (a) Straight-line method. (b) Units-of-production method. (c) Double-declining-balance method. 2. Evaluate each method in terms of its effect on cash flow, fixed asset turnover, and EPS. Assuming that Ford Motor Company is most interested in reducing taxes and maintaining a high EPS for year 1, what would you recommend to management? Would your recommendation change for year 2? Why or whynot?
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