Dt Llc Case Summary

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In evaluating capital expenditures, it is necessary to analyze net present value and internal rate of return to gauge return on investment. DT LLC has decided to use three depreciation methods – including straight-line, sum-of-the-year’s digits, and MACRS depreciation – to determine the profitability of XYZ’s investment. DT LLC’s accounting department believes analyzing the computer system investment through three separate depreciation methods would give a comprehensive overview of the return on this investment.

DT LLC used the straight-line depreciation (SLD) method to calculate annual depreciation by taking the initial investment of 42,500,000 and dividing it over ten years to get 4,250,000. Our accounting department reports the following annual depreciation (in thousands) for a 10-year period using the straight-line depreciation method:

Year 1 2 3 4 5 6 7 8 9 10
Depreciation 4,250 4,250 4,250 4,250 4,250 4,250 4,250 4,250 4,250 4,250

Using the SLD method, our accounting department arrived at a net present value of $8,894 (in thousands) and an internal rate of return of 13.86%.

DT LLC also used the Sum-of-the-Year’s Depreciation (SYD) method to gauge the return on investment of XYZ’s computer
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DT LLC also used the MACRS depreciation method to analyze the return on investment. Our accounting department reports the following annual depreciation (in thousands) by using the 10-year property class depreciation rates.

Year 1 2 3 4 5 6 7 8 9 10
Depreciation $4,250 $7,650 $6,120 $4,896 $3,919 $3,132 $2,784 $2,784 $2,784 $2,784

Using the MACRS depreciation method, our accounting department calculated a net present value of $9,338 (in thousands) and an internal rate of return of 14.13%.

(NPV are in thousands)
Method NPV IRR
Straight Line $8,894 13.86%
Sum of the Years Digits $10,018 14.54%
MACRS 9,338

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