ECON
Session 8 ch09 class.ppt

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additions, and/or installation) – also called unadjusted basis depreciation allowance : the depreciation charge or deduction for a given year book value : cost basis less capital recovered, such as depreciation allowances – also called unrecovered investment , adjusted cost basis , and adjusted basis

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Principles of Engineering Economic Analysis , 5th edition Depreciation Terminology (cont’d) recovery period : time over which the cost basis can be recovered, keyed to 3, 5, 7, 10, 15, 20, 27.5, or 31.5 years, depending on type of property involved. salvage value : estimated market value at the end of the asset’s useful life useful life : estimate of duration of use of the asset by the taxpayer
Principles of Engineering Economic Analysis , 5th edition Straight-Line (SLN) Depreciation Let P = cost basis F = salvage value n = recovery period d t = depreciation allowance for year t B t = book value at the end of year t d t = ( P – F )/ n =SLN( P,F,n ) B t = P - td t

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Principles of Engineering Economic Analysis , 5th edition Example 9.2 A surface mount placement machine is being purchased for \$500,000; it has an estimated useful life of 10 years and a salvage value of \$50,000 at that time. Determine the depreciation allowance for the 5 th year and the book value at the end of the 5 th year using SLN. P = \$500,000; F = \$50,000; n = 10; t = 5 d 5 = (\$500,000 - \$50,000)/10 = \$45,000 =SLN(500000,50000,10) = \$45,000 B 5 = \$500,000 – 5(\$45,000) = \$275,000
Principles of Engineering Economic Analysis , 5th edition A car owner desires to sell his SUV when its value reaches approximately half its purchased value.

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• Fall '17
• Mike Heny

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