Assume that at the beginning of 2011, Fast Delivery, a UPS competitor, purchased a used Jumbo 747 aircraft at a cost of $44,400,000. Fast Delivery expects the plane to remain useful for fi ve years (6.5 million miles) and to have a residual value of $5,400,000. Fast Delivery expects to fl y the plane 725,000 miles the first year, 1,225,000 miles each year during the second, third, and fourth years, and 2,100,000 miles the last year.
1. Compute Fast Delivery’s depreciation for the first two years on the plane using the following methods:
a. Straight-line
b. Units-of-production
c. Double-declining-balance
2. Show the airplane’s book value at the end of the first year under each depreciation method.