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Exam+III+B+Solutions+Revised

# Exam+III+B+Solutions+Revised - ISyE 3025 Professor Nagi...

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ISyE 3025 Engineering Economy Spring 2011 Professor Nagi Gebraeel Solution to Exam III B 1. [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 straight-line depreciation was used to calculate the depreciation deduction for year 11, what was the asset’s initial value? (a) \$72 , 682 (b) \$80 , 000 X (c) \$42 , 105 (d) \$67 , 682 Solution: Under the straight-line method we depreciate the same amount every year of the useful life. With a 20 year life and an annual depreciation of \$4 , 000 (and salvage value of \$0), the initial value of the asset is 20 · 4 , 000 = \$80 , 000. 2. [10] When a business calculates taxable income from gross income, which of the following is true? 3. [10] A lumber company purchases and installs a wood chipper for \$200 , 000. The chipper is classified as a MACRS 7-year 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. 000.

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Exam+III+B+Solutions+Revised - ISyE 3025 Professor Nagi...

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