examples for depreciation and cash flows

# examples for depreciation and cash flows - EC 309 ECONOMICS...

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EC 309 ECONOMICS FOR ENGINEERS EXAMPLE PROBLEMS & SOLUTIONS- IV 1. A truck for hauling coal has an estimated net cost of \$55,000 and is expected to give service of 250,000 miles, resulting in a \$5,000 salvage value. Compute the allowed depreciation amount for truck usage of 30,000 miles. I = \$55,000 S= \$5,000 Total service units = 250,000 miles Usage for this year = 30,000 miles Solution : Dn = (30000/250000)x(55,000-5,000) = \$6,000 2. An asset costs 20,000 at time zero and has a useful life of 5 years. The estimated salvage value is 5,000 for this purchase. Calculate the annual deprecation allowance and the resulting book value using the STRAIGT LINE DEPRECIATION METHOD. Solution : I= \$20000 N= 5 years S=\$5,000 Dn = (I-S)/n Dn Bn 0 0 20000 1 3000 17000 2 3000 14000 3 3000 11000 4 3000 8000 5 3000 5000 3. Resolve the problem using the declining balance depreciation method. Solution : Alfa = 0.4 Dn Bn 0 0 20000 1 20000x0.4 = 8000 12000 2 12000x0.4= 4800 7200 3 2880 Adjusted to 2200 5000 4 0 5000 5 0 5000 2880 is adjusted to 2200 since the item cannot be depreciated below its salvage value.

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4. Using information method provided in question 1, determine the optimal time to
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