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Unformatted text preview: ISyE 3025 Engineering Economy Spring 2011 Professor Nagi Gebraeel Solution to Exam III A 1. [10] A lumber company purchases and installs a wood chipper for $200 , 000. The chipper is classified as a MACRS 7year property. Its useful life is 10 years. The estimated salvage value at the end of 10 years is $25 , 000. Using MACRS depreciation, compute the first year depreciation. (a) $28 , 571 . 43 X (b) $20 , 000 (c) $17 , 500 (d) $25 , 000 Solution: The firstyear depreciation percentage for an asset in the 7year property class is 14 . 29%. We obtain the correct answer by multiplying this percentage by the initial value of $200 , 000. 2. [10] An Xray machine is classified as a MACRS 5year property. It costs $6 , 000 and has an expected useful life of 8 years. The salvage value at the end of 8 years is expected to be $500. Assuming a MACRS depreciation, what is the book value at the end of the third year? (a) $1 , 584 (b) $1 , 728 X (c) $3 , 916 (d) $4 , 272 Solution: The depreciation percentages for the first three years of a 5year property are 20%, 32%, and 19 . 2%. After we subtract these percentages from the intial value of $6 , 000 we get the correct answer. BV = (1 . 20 . 32 . 192)6 , 000 = $1 , 728 3. [10] Which of the following is (are) required to calculate the MACRS depreciation deductions? 1 Property Class 2 Salvage Value 3 First Cost 4 Annual Maintenance (a) 1 and 3 only X (b) 2 and 3 only (c) 1, 2 and 3 (d) 1, 2, 3 and 4 4. [10] The depreciation deduction for year 11 of an asset with a 20 year useful life is $4 , 000. If the asset’s salvage value was estimated to be zero and straightline depreciation was used to calculate the depreciation deduction for year 11, what was the asset’s initial value?...
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This note was uploaded on 08/28/2011 for the course ISYE 3025 taught by Professor Lee during the Spring '09 term at Georgia Tech.
 Spring '09
 Lee

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