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Unformatted text preview: IE 343 Engineering Economics Lecture 27: Chapter 7  Depreciation and Income Taxes Instructor: Tian Ni Oct.31, 2011 IE 343 Fall 2011 1 Quiz 7 will be given at the beginning of the class 4:30PM 4:45PM on Wednesday Nov.2 Quiz 7 will have 2 problems totally 10 points You will have 15 minutes to finish quiz 7 Please bring a CALCULATOR to the quiz All quiz 7 problems will be selected from the following three sources. You will see the same problems but maybe with numbers changed IE 343 Fall 2011 Tips for Quiz 7 2 1. Homework 7 Problem 15 (solutions for Homework 6 has been posted on Blackboard Vista) 2. Examples on Lecture Notes (please refer to the full version lecture notes and ExcelChapter6 for the example solutions) Lec 22_Full: Example 6.4,6.5, 6.6 (Incremental analysis using IRR or ERR with more than 2 alternatives) Lec 23, 24_Full : Example 6.7,6.8,6.9 (when study period not equal to useful lives: Case 1: Repeatability Assumption holds AW method. Case 2: Study period > useful life Coterminated Assumption. Case 3: Study period < useful life imputed(implied) market value technique 3. Examples on Textbook Chapter 6 section 6.5 Example 6.7 6.12 IE 343 Fall 2011 Tips for Quiz 7 3 Time Implemented Method Before 1981 (SL) StraightLine (DB) Declining Balance (SYD) Sumoftheyearsdigits > 1980 > 1987 (ACRS) Accelerated Cost Recovery System Implemented by (ERTA) Economic Recovery Tax Act of 1981 >1986 (MACRS) Modified Accelerated Cost Recovery System Brought about by (TRA 86) Tax Reform Act of 1986 Depreciation Methods, Related Time Periods 4 IE 343 Fall 2011 Unadjusted cost basis: The initial cost of acquiring the asset (includes the purchase cost, delivery and installation fees). Adjusted cost basis: Cost basis adjusted with any improvements and losses. Book value (BV): The value of an asset on the accounting records of a company after the total amount of depreciation deduction to date has been subtracted from its adjusted cost basis . IE 343 Fall 2011 Concepts and Terminology 5 Book Value (BV): Where BV k is the BV at the end of the year k . In other words, BV is the assets remaining unrecovered cost. IE 343 Fall 2011 Book Value (BV) = = = = k j j k k j k d BV j BV 1 1 ) ( basis cost adjusted ) year in deduction on depreciati annual ( basis cost adjusted 6 Market value (MV): The amount that will be earned if the asset is sold in an open market. MV can be different than BV. For example, IT equipment usually has a MV much lower than its BV due to rapidly changing technology. Useful life: The expected (estimated) period that a property will be used in a trade or business to produce income. It is not how long the property will last but how long the owner expects to productively use it....
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This note was uploaded on 01/28/2012 for the course IE 343 taught by Professor Vincent,g during the Winter '08 term at Purdue UniversityWest Lafayette.
 Winter '08
 Vincent,G

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