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Economy HW 5 Old

This document contains instructions for an engineering economics assignment with three questions. Question 1 involves calculating straight-line depreciation for air handling equipment over 8 years. Question 2 involves calculating depreciation using the double-declining balance method over 3 years for new equipment costing $50,000. Question 3 involves performing a spreadsheet analysis to select the depreciation method, either straight-line or some other method, that results in a lower present worth of taxes for a company operating in a South American country using an 8% interest rate and 40 year tax effect period.

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0% found this document useful (0 votes)
35 views3 pages

Economy HW 5 Old

This document contains instructions for an engineering economics assignment with three questions. Question 1 involves calculating straight-line depreciation for air handling equipment over 8 years. Question 2 involves calculating depreciation using the double-declining balance method over 3 years for new equipment costing $50,000. Question 3 involves performing a spreadsheet analysis to select the depreciation method, either straight-line or some other method, that results in a lower present worth of taxes for a company operating in a South American country using an 8% interest rate and 40 year tax effect period.

Uploaded by

AmroKasht
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOC, PDF, TXT or read online on Scribd
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Qatar University

College of Engineering
GENG 360: Engineering Economy

Fall 2009

Assignment 5

Due Date: Jan. 4, 2009 (MON.) at 12:00 PM – Submit to Eng. “M. Abu-Nada’s” Mailbox

1. Air handling equipment that costs $12,000 has a life of 8 years with a $2000
salvage value. (a) Calculate the straight line depreciation amount for each year. (b)
Determine the book value after 3 years. (c)What is the rate of depreciation?
(16.11)

(a) Dt = 12,000 – 2000 = $1250


8

(b) BV3 = 12,000 – 3(1250) = $8250


(c) d =1/n = 1/8 = 0.125

2. New equipment to read 96-bit product codes that are replacing old bar codes is to
be purchased by General Food Stores. As a trial, 1000 of the items will be initially
purchased. The DDB method will be used to depreciate the total amount of
$50,000 over a 3-year recovery period. Calculate the accumulated depreciation
and book value curves (a) by hand and (b) by computer (and plot the results).
(16.17)

(a) B = $50,000, n = 3, d = 2/n = 2/3 = 0.6667 for DDB

Annual depreciation = 0.6667(BV of previous year)

Depreciation, Accumulated Book


Year Eq. [16.5] depreciation value
0 - - $50,000
1 $33,335 $33,335 16,667
2 11,112 44,447 5,555
3 3,704 48,151 1,851

(b) Use the function DDB(50000,0,3,t,2) for annual DDB depreciation in


column B. The
plot is developed using Excel’s xy scatter chart function
=DDB(50000,0,3,
3,2)

3. Perform an analysis using a spreadsheet between the following two depreciation


options for a company operating in a South American country. Select the preferred
method based on the better PW of tax value at i = 8% and Te = 40%. (17.21)

Here Taxes = (CFBT – depr)(tax rate). Use NPV function for PW of taxes.
Select the SL method with n = 5 years since it has the lower PW of tax.

- next page

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