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Squid Roe, Inc.'s $48,000 sushi bar was originally expected to be used for 8 years with no residual value. Depreciation on the bar was $6,000 per year for the past 2 years. In the 3rd year, management changed the estimated life of the bar to be a total of only 6 years instead of 8. What should Squid Roe do?

User Xiaozhi
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Final answer:

Squid Roe, Inc. should adjust the sushi bar's depreciation to $9,000 per year for the remaining 4 years. Decisions to continue business operations depend on whether the center is making a profit. The share price for Babble, Inc. depends on the present value of expected future dividends.

Step-by-step explanation:

When the useful life of an asset is revised, Squid Roe, Inc. needs to adjust the remaining depreciation. Over the past 2 years, $6,000 per year has been depreciated, totaling $12,000. The sushi bar's original cost is $48,000, so the book value after two years is $48,000 - $12,000 = $36,000. Now, with the revised useful life being a total of 6 years, and 2 years already passed, the sushi bar has 4 years of remaining use. Thus, the annual depreciation for the remaining years is the book value divided by the remaining useful life: $36,000 / 4 = $9,000 per year. Therefore, Squid Roe should depreciate the sushi bar by $9,000 for each of the next 4 years.

Concerning the operational decisions, for the center that earns revenues of $10,000 with variable costs of $15,000, the recommendation is to shut down, as it is operating at a loss. However, if revenues are $20,000, exceeding the variable costs of $15,000, the center should continue to operate, as it is generating a profit.

In relation to Babble, Inc., an investor would consider the present value of the future dividends to determine what to pay for a share of stock. The present value of the dividends would be calculated by discounting the future amounts back to their present value, typically using a discount rate that reflects the investor's required rate of return.

User Siya
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