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Old 02-20-2013, 11:23 AM
answishy answishy is offline
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Join Date: Feb 2013
Posts: 1
Default Help With DDB Depreciation.

Hello. I am working on a capital budgeting problem and I am trying to figure out how to get depreciation values by using DDB (Double-Declining-Balance) Depreciation. Actually, my professor gave me the values, but I am trying to figure out how to work it out.

Product costs 50,000
Salvage value: 10,000
Cash flows: Year 1: 10,000 Year 2: 12,000 Year 3: 12,000 Year 4: 12,000 Year 5: 10,000

Here is what I have done so far:

I have gotten the depreciation rate by using the formula (1/life) * 2
So, (1/5) * 2 = 40%

ddb
Year 1: .40 * 50,000 = 20,000
Year 2: .40 * (50,000-20,000) = 12,000
Year 3: .40 * (50,000-32,000) = 7,200

I am stuck on Year 4..
The depreciation value I was given by my professor is 800, but when I work it out..
.40 * (50,000-39,200) = 4320

Can anyone explain to me what I am doing wrong?
Also, why is the depreciation 0 in the last year (year 5)?

If anyone can offer me some help, I would really appreciate it!

Thanks.
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Old 03-09-2013, 04:36 AM
abc201879456 abc201879456 is offline
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Join Date: Mar 2013
Posts: 22
Default Re: Help With DDB Depreciation.

Heres the solution

ddb:
Year1 depreciation:.4*(50000)=20000
,bv=50000-20000=30000
year2 depreciation:.4*(50000-20000)=12000
bv=30000-12000=18000
year3 depreciation:.4*(18000)=7200
bv=18000-7200=10800

total depreciation=20000+12000+7200=39200
total value =buy value-salvage value=50000-10000=40000
depreciation left=40000-39200=800 in year 4


this type of topic are deeply covered in cfa
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