ECON
Session 8 ch09 class.ppt

# Determine the year in which the car should be sold

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Determine the year in which the car should be sold and how much money he can receive for the car. Draw a cash flow diagram showing the annual depreciation allowances for each year until the end of the SUV’s useful life. Information concerning the SUV is shown below. Cost of SUV: \$10,000 Useful life: 5years Estimated salvage value: \$2000 Use SLN

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Principles of Engineering Economic Analysis , 5th edition Ans: year 3, \$5200. using SLN the annual depreciation allowance is \$1600
Principles of Engineering Economic Analysis , 5th edition Declining Balance (DB) Depreciation In addition to the previously defined notation, let d t = pP (1 – p ) t -1 = (1 – p ) d t -1 B t = P (1 – p ) t Where p = declining balance percentage, rate, or fraction, e.g. 1.5/ n , 2/ n * Using F=(-P)(1+p) n , p (rate) can be found *When p = 2/ n it is called double declining balance (DDB)

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Principles of Engineering Economic Analysis , 5th edition Example 9.3 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 declining balance depreciation. P = \$500,000; F = \$50,000; n = 10; t = 5 p =-RATE(10,,-500000,50000) = 20.5672% d 5 = 0.205672(\$500,000)(1.0 – 0.205672) 5-1 = \$40,939.70 =DB(500000,50000,10,5) = \$40,937.30 B 5 = \$500,000(1.0 – 0.205672) 5 = \$163,840.00
Principles of Engineering Economic Analysis , 5th edition Modified Accelerated Cost Recovery System SLN is the most commonly used depreciation method for financial reporting MACRS is the most commonly used depreciation method for computing income tax liability MACRS is the only depreciation method approved for use in the U.S. for income tax purposes

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• Fall '17
• Mike Heny

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