10.10      PROJECTING  PROPERTY, PLANT, AND  EQUIPMENT.  Intel  is  a global leader in manufacturing microprocessors, which is very capital-intensive. The pro- duction processes in microprocessor manufacturing require sophisticated technology, and the technology changes rapidly, particularly with each new generation of microprocessor. As a consequence, production and manufacturing assets in the microprocessor industry tend to have relatively short useful lives. The following summary information relates to Intel’s property, plant, and equipment for 2007 and 2008:

 

Intel (amounts in millions)	2007	2008
Property, Plant, and Equipment, at cost	$ 46,052	$ 48,088
Accumulated Depreciation	$(29,134)	$(30,544)
Property, Plant, and Equipment, net	$ 16,918	$ 17,544
Depreciation Expense	Â	$   4,360
Capital Expenditures, net	Â	$   5,200

Required

Assume that Intel 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 Intel used for depreciation in 2008.

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 2008; (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.