You Have Been Hired by a High-Growth Startup Company to Assist

question 19

Essay

You have been hired by a high-growth startup company to assist in the determination of what depreciation method to employ for financial reporting. The company's fixed assets are equally divided among buildings and high-tech equipment (heavily used in the initial years).
(a)Can the company select different methods of depreciation for financial reporting? Explain.
(b)Explain to company management which metho di of depreciation woutd be suit able for each type of fixed assets the company employs. Also, state why.

(c)Which method of depreciation would the company choose for taxes? Explain why.

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Definitions:

Operating Leverage

A metric assessing the impact of increased sales on operational earnings, revealing the balance between a firm's fixed and variable expenses.

EBIT

Earnings Before Interest and Taxes, a measure of a company's profitability that excludes interest and income tax expenses to show the business's core profitability.

DOL

Department of Labor, a U.S. government department responsible for occupational safety, wage standards, unemployment insurance benefits, re-employment services, and some economic statistics.

Financial Leverage

The use of debt to increase the potential return of an investment.