Assume that at the beginning of 2013, DHL, a FedEx competitor, purchased a used Jumbo 747 aircraft at a cost of $52,400,000. DHL expects the plane to remain useful for five years (7.3 million miles) and to have a residual value of $6,400,000. DHL expects to fly the plane 835,000 miles the first year, 1,650,000 miles each year during the second, third, and fourth years, and 1,515,000 miles the last year.
1. Compute DHL’s depreciation for the first two years on the plane using the following methods:
a. Straight-line
b. Units-of-production (round depreciation per mile to the closest cent)
c. Double-declining-balance
2. Show the airplane’s book value at the end of the first year under each depreciation method.