Lec%2032_Full(1) - IE 343 Engineering Economics Lecture 32:...

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IE 343 Engineering Economics Lecture 32: Chapter 8 – Price Changes and Exchange Rates Instructor: Tian Ni Nov.11, 2011 IE 343 Fall 2011 1
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Adjusted Cost basis = $100 Net annual cash flow = $20 Useful life = 8 years Market Value: MV 8 = $50 Income tax rate = 40% MARR = 10% Please set up the after-tax economic analysis table for the following cases? IE 343 Fall 2011 Good Practice of Chapter 7 2
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IE 343 Fall 2011 Good Practice of Chapter 7 3 EOY K BTCF dk TI Tk ATCF
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Case 1: No early disposal Asset Fully Depreciated Case 1.1: 7 years SL method Case 1.2: 7 years MACRS (GDS) Case 1.3: 7 years MACRS (ADS) Asset Not Fully Depreciated Case 1.4: 7 years double DB method IE 343 Fall 2011 Good Practice of Chapter 7 4
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Case 2: Early disposal (Half – Year convention applies to the early disposal) For example: Sell the asset at EOY 5 for $60 Case 2.1: 7 years SL method Case 2.2: 7 years MACRS (GDS) Case 2.3: 7 years MACRS (ADS) Case 2.4: 7 years double DB method IE 343 Fall 2011 Good Practice of Chapter 7 5
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Case 3: Recovery Period Useful Lives (Half – Year convention applies to the end of the useful lives) Case 3.1: 10 years SL method Case 3.2: 10 years MACRS (GDS) Case 3.3: 10 years MACRS (ADS) Case 3.4: 10 years double DB method IE 343 Fall 2011 Good Practice of Chapter 7 6
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(Annual CPI inflation (or deflation) rate) k = [(CPI k – CPI k-1 ) / CPI k-1 ] × 100 CPI k = Consumer price index for the current year CPI k-1 = Consumer price index for the preceding year IE 343 Fall 2011 Last Time - Consumer Price Index (CPI) 7
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Actual dollars (A$) : The number of dollars in the current time frame; A$ are also referred to as "nominal dollars", "current dollars", "then-current dollars", or "inflated dollars". Real dollars (R$) : Dollars in terms of purchasing power relative to a particular time period (i.e., base year/period); R$ are also termed "constant dollars". Base time period (b) : Reference point in time to define the purchasing power of real dollars. i.e. b = 0 IE 343 Fall 2011 Last Time – Terminology 8
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General price inflation (or deflation) rate (f) : Measure of change in the purchasing power of a dollar during a specified period of time. Market interest rate (i
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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 University-West Lafayette.

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Lec%2032_Full(1) - IE 343 Engineering Economics Lecture 32:...

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