EGG 307: Engineering Economics
Homework No. 9: Solutions
Review the lecture notes and examples on depreciation and tax analysis
and attempt the following two
problems.
Chapter 7 Problems 78 and 715
Notes
:
(1)
For Problem 78(b) use the regular 200% declining balance method (
without
switch to
straight line). Note also that with the GDS and ADS methods, you use zero salvage value.
(2)
Problem 715
(i)
Note that there are three cells, therefore the total cost of the cells is 3
x
$500,000 and
similarly, the total sale price after six years is 3
x
$120,000.
(ii) For part (d) of this problem, calculate the capital gain (defined here as “depreciation
recapture”) from the sale of the cells
(iii)
Additional question:
Part (e): If the cells are expected to generate
annual
net
revenues of $100,000 each (total $300,000), compute the aftertax cash flows in each
year over the six years of service life of the cells. Assume a tax rate of 35%. Present
this in a nice table, similar to examples 717 and 718 in the text book. Note that the
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 Spring '09
 Dr.Kaseko
 Depreciation, aftertax cash flows

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