The pumping cost for delivering water from the Ohio River to Wheeling Steel for cooling hot rolled steel was $1.8 million for the first 5 years. An effective energy conservation program resulted in a reduced cost of $1.71 million in year 6, $1.625 million in year 7, and amounts decreasing by 5% each year through year 15. What is the equivalent annual worth of the pumping costs at an interest rate of 8% per year?
Depreciation Methods
The word "depreciation" is defined as an accounting method wherein the cost of tangible assets is spread over its useful life and it usually denotes how much of the assets value has been used up. The depreciation is usually considered as an operating expense. The main reason behind depreciation includes wear and tear of the assets, obsolescence etc.
Depreciation Accounting
In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.
The pumping cost for delivering water from the Ohio River to Wheeling Steel for cooling hot rolled steel was $1.8 million for the first 5 years. An effective energy conservation program resulted in a reduced cost of $1.71 million in year 6, $1.625 million in year 7, and amounts decreasing by 5% each year through year 15. What is the equivalent annual worth of the pumping costs at an interest rate of 8% per year?
Trending now
This is a popular solution!
Step by step
Solved in 5 steps with 4 images
