MAnaf H>W 2 - Eng Economics Manaf Alwaheeb U30512542...

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Eng. Economics Manaf Alwaheeb U30512542 H.W (CH11 – CH15) 04/29/2011 CHAPTER 11: 11-2 DDB Schedule is: Year n d(n) = (2/n)[P − sum d(n)] DDB Depreciation 1 (2/6) ($1,000,000 − $0) = $333,333 2 (2/6) ($1,000,000 − $333,333) = $222,222 3 (2/6) ($1,000,000 − $555,555) = $148,148 4 (2/6) ($1,000,000 − $703,703) = $98,766 5 (2/6) ($1,000,000 − $802,469) = $65,844 6 See below = $56,687 If switch DDB to SL for year 5: SL = ($1,000,000 − $802,469 − $75,000)/2 = $61,266 Do not switch. If switch DDB to SL for year 6: SL = ($1,000,000 − $868,313 − $75,000)/1 = $56,687 Do switch. Sum-of-Years Digits Schedule is: SOYD in N = [(Remain. useful life at begin. of yr.)/[(N/2)(N +1)]] (P − S) 1 st Year: SOYD = (6/21) ($1 mil − $75,000) = $264,286 2 nd Year: = (5/21) ($1 mil − $75,000) = $220,238 3 rd Year: = (4/21) ($1 mil − $75,000) = $176,190 4 th Year: = (3/21) ($1 mil − $75,000) = $132,143 5 rd Year: = (2/21) ($1 mil − $75,000) = $ 88,095 6 th Year: = (1/21) ($1 mil − $75,000) = $ 44,048 Question: Which method is preferred? Answer: It depends, on the MARR%, i% used by the firm (individual) As an example: If i% is PW of DDB is PW of SOYD is Preferred is 0% $925,000 $925,000 Equal, same 2% $881,211 $877,801 DDB 10% $738,331 $724,468 DDB 25% $561,631 $537,130 DDB Thus, if MARR% is > 0%, DDB is best. One can also see this by inspection of the depreciation schedules above. 11-4 (a) Straight Line Depreciation SL depreciation in each year = (P – S)/N = ($12,000 − $600)/4 = $2,850 (b) Sum-of-Years Digits Depreciation SOYD in yr. N = [(Remain. useful life at begin. of yr)/[(N/2)(N +1)]] (P – S)
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