Engineering Economic Analysis
Engineering Economic Analysis
13th Edition
ISBN: 9780190296902
Author: Donald G. Newnan, Ted G. Eschenbach, Jerome P. Lavelle
Publisher: Oxford University Press
Question
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Chapter 11, Problem 11P
To determine

(a)

The depreciation schedule using straight line depreciation.

Expert Solution
Check Mark

Answer to Problem 11P

The depreciation schedule using straight line depreciation is shown below.

Year (t) Depreciation dt=BSn
1 $3,600
2 $3,600
3 $3,600
4 $3,600
5 $3,600

Explanation of Solution

Given:

Cost of the handling device is $20,000.

Time period is 5years.

Salvage value is $2,000.

Concept used:

Write the expression to calculate the depreciation value for the handling device

dt=BSn ...... (I)

Here, the depreciation value is dt, the cost of the handling device is B, salvage value is S and number of years is n.

Calculation:

Calculate the depreciation for the handling device.

Substitute $20,000 for B, $2,000 for S and 5 for n in Equation (I).

dt=$20,000$2,0005=$3,600

Calculate the depreciation for 5 years and enter them in a table below.

Year (t) Depreciation dt=BSn
1 $3,600
2 $3,600
3 $3,600
4 $3,600
5 $3,600

Conclusion:

The depreciation schedule using straight line depreciation is shown below.

Year (t) Depreciation dt=BSn
1 $3,600
2 $3,600
3 $3,600
4 $3,600
5 $3,600
To determine

(b)

The depreciation schedule using SOYD.

Expert Solution
Check Mark

Answer to Problem 11P

The depreciation schedule using SOYD is shown below.

Year (t) Depreciation (dt)
1 $6,000
2 $4,800
3 $3,600
4 $2,400
5 $1,200

Explanation of Solution

Concept used:

SOYD is known as sum of year’s digits depreciation.

Write the expression to calculate the depreciation of the handling device.

dt=nt+1SOYD(BS)dt=nt+1[n(n+1)2](BS) ...... (II)

Here, the depreciation value is dt, total number of years is n, cost of the handling device is B, particular year is t and salvage value after depreciable life is S.

Calculation:

Calculate the depreciation using SOYD for the handling device.

Substitute, 5 for n, $20,000 for B and $2,000 for S in Equation (II)

dt=5t+1[5(5+1)2]($20,000$2,000)=(6t)15×($18,000)=$1,200(6t) ...... (III)

Calculate the depreciation value for 5 year.

Year (t) Depreciation (dt)
1 $6,000
2 $4,800
3 $3,600
4 $2,400
5 $1,200

Here, calculate the depreciation from Equation (III).

Conclusion:

The depreciation schedule using SOYD is shown below.

Year (t) Depreciation (dt)
1 $6,000
2 $4,800
3 $3,600
4 $2,400
5 $1,200
To determine

(c)

The depreciation schedule using double declining balance depreciation.

Expert Solution
Check Mark

Answer to Problem 11P

The depreciation schedule using double declining balance depreciation is shown below.

Year (t) Depreciation (dt)
1 $8,000
2 $4,800
3 $2,880
4 $1,728
5 $1036.8

Explanation of Solution

Concept used:

Write the expression to calculate the depreciation using double declining balance depreciation

dt=2n(BDepreciationchargeuptoyeart) ...... (IV)

Here, the depreciation is dt, number of years is n, cost is B.

Calculation:

Calculate the depreciation of the handling device for the first year.

Substitute 5 for n, $20,000 for B and 0 for depreciation charge up to year t in Equation (IV).

dt=25($20,000$0)=25×$20,000=$8,000

Calculate the depreciation of the handling device for 5 years and enter it in a table below.

Year (t) Depreciation charge up to year t Depreciation (dt)
1 0 $8,000
2 $8,000 $4,800
3 $12,800 $2,880
4 $15,680 $1,728
5 $17,408 $1036.8

Conclusion:

The depreciation schedule using double declining balance depreciation is shown below.

Year (t) Depreciation (dt)
1 $8,000
2 $4,800
3 $2,880
4 $1,728
5 $1036.8
To determine

(d)

The depreciation schedule using MACRS depreciation.

Expert Solution
Check Mark

Answer to Problem 11P

The depreciation schedule using MACRS is shown below.

Year (t) MACRS (rt) Cost (B) Depreciation dt=rt×B
1 33.33% $20,000 $6,666
2 44.45% $20,000 $8,890
3 14.81% $20,000 $2,962
4 7.41% $20,000 $1,482

Explanation of Solution

Concept used:

Write the expression to calculate the depreciation value for the motorboat.

dt=B×rt ...... (V)

Here, the depreciation value is dt, the cost of the plane is B and the MACRS percentage is rt.

Calculation:

Using MACRS GDS 4 year property table calculate the depreciation for the handling device.

Calculate the depreciation for handling device.

Substitute $20,000 for B and 33.33% for rt in Equation (V).

dt=$20,000×33.33%=$6,666

Calculate the depreciation for 5 years and enter them in a table below.

Year (t) MACRS (rt) Cost (B) Depreciation dt=rt×B
1 33.33% $20,000 $6,666
2 44.45% $20,000 $8,890
3 14.81% $20,000 $2,962
4 7.41% $20,000 $1,482

Conclusion:

The depreciation schedule using MACRS is shown below

Year (t) MACRS (rt) Cost (B) Depreciation dt=rt×B
1 33.33% $20,000 $6,666
2 44.45% $20,000 $8,890
3 14.81% $20,000 $2,962
4 7.41% $20,000 $1,482

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