ECO204_2008_Test_2_solutions

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Unformatted text preview: d for Colgate toothbrushes and cannot be used by other companies to manufacture any product. Table 1 has the purchase price and depreciation time: Table 1 Purchase Price $500,000 $300,000 $150,000 Machine Tufter Handle Mold Packaging Depreciation Time 15 years 5 years 5 years Source: ColgatePalmolive Company: The Precision Toothbrush, HBS Case 9593064 Suppose Colgate hires workers in competitive markets at PL = $10. Currently, the average interest rate for bank deposits is 5%. Colgate's target output is 2m toothbrushes a year. (a) (5 points) Use the straight line depreciation method to calculate the annual depreciation (up to two decimal places) for the Tufter, Handle Mold and Packaging machines. Show your calculations below. Answer: Note: depreciation time is not the same as the actual life of a machine. Annual depreciation Tufter = $500,000/15 = $33,333.33 Annual depreciation Handle Mold = $300,000/5 = $60,000 Annual depreciation Packaging = $150,000/5 = $30,000 8 ECO 204, 2008-2009, Test 2 Solutions This test is copyright material and may not be used for commercial purposes without...
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