IOE+201+Notes+9 - 1 Salvage Value For a project that...

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Unformatted text preview: 1 Salvage Value For a project that requires investing in equipment, there is often still some value to the equipment at the end of the projects life. If the equipment has a usable life beyond the life of the project, a value is assigned to the unused portion of time left for the equipment. This value is called the salvage value . Salvage Value is the amount of money that the equipment could be sold for at the end of the projects life. IOE 201 Lecture Notes 9 2 Example: Project has a life of 5 years. Equipment has a life of 8 years. Initial investment of equipment is $100,000 Salvage value after 5 years is $20,000 1 2 3 4 5 years $100,000 $20,000 Cash flow diagram for equipment: Salvage Value 3 Example: Project has a life of 5 years. Equipment has a life of 8 years. Initial investment of equipment is $100,000 Salvage value after 5 years is $20,000 1 2 3 4 5 years $100,000 $20,000 Salvage value is added to other cash flows: Salvage Value $30,000 $30,000 $30,000 $30,000 $15,000 $10,000 $10,000 4 Depreciation The salvage value of equipment is the value of the equipment at the end of a projects life. The salvage value is less than the initial value of new equipment, due to loss of value with time and use....
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IOE+201+Notes+9 - 1 Salvage Value For a project that...

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