Problem
Techtronics is a leader in manufacturing computer chips, which is very capital-intensive. Because the production processes in computer chip manufacturing require sophisticated and rapidly changing technology, production and manufacturing assets in the chip industry tend to have relatively short useful lives.
The following summary information relates to Techtronics' property, plant, and equipment for 2009 and 2010:
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Techtronics (amounts in millions)
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2009
|
2010
|
|
Property, Plant, and Equipment, at cost
|
$ 46,052
|
$ 48,088
|
|
Accumulated Depreciation
|
$(29,134)
|
$(30,544)
|
|
Property, Plant, and Equipment, net
|
$ 16,918
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$ 17,544
|
|
Depreciation Expense
|
|
$ 4,360
|
|
Capital Expenditures, net
|
|
$ 5,200
|
Required
Assume that Techtronics depreciates all property, plant, and equipment using the straight-line depreciation method and zero salvage value. Assume that Intel spends $6,000 on new depreciable assets in Year 1 and does not sell or retire any property, plant, and equipment during Year 1.
a. Compute the average useful life that Techtronics used for depreciation in 2010.
b. Project total depreciation expense for Year 1 using the following steps: (i) project depreciation expense for Year 1 on existing property, plant, and equipment at the end of 2010; (ii) project depreciation expense on capital expenditures in Year 1 assuming that Intel takes a full year of depreciation in the first year of service; and (iii) sum the results of (i) and (ii) to obtain total depreciation expense for Year 1.
c. Project the Year 1 ending balance in property, plant, and equipment, both at cost and net of accumulated depreciation.