Year 1 Company A Company B Company C

Revenue 40000 40000 40000

Depreciation (11250) (25000) (14850)
Net Income 28750 15000 25150
Company A has highest net income for year 1 with 28750

Year 4 Company A Company B Company C

Revenue 40000 40000 40000
Depreciation (11250) (1250) (11700)
Net Income 28750 38750 28300
Company C has lowest net income for year 4 with 28300

Company A Accumulated Depreciation

Year 1 $ 11,250
Year 2 11,250
Year 3 11,250
$33,750

Cost $50,000
Accumulated Depreciation (33,750)
Book Value $16,250

Company B Accumulated Depreciation

Year 1 $25,000
Year 2 12,500
Year 3 6,250
$43,750

Cost $50,000
Accumulated Depreciation (43,750)
Book Value $ 6,250

Company C Accumulated Depreciation

 Year 1 $14,850
Year 2 9,450
Year 3 9,000
$33,300

Cost $50,000
Accumulated Depreciation (33,300)
Book Value $16,700

Highest book value for Year 3 Company C with $16,700

d. Sales (four years) $160,000

Depreciation (four years) (45,000)
Retained Earnings $115,000

All companies have the same retained earnings because over the four-year period, the total
depreciation is the same.

e. The cash flow from operating activities will be the same for each company if income tax is
not considered. Depreciation expense is not a cash flow item.