Queens University Faculty of Engineering & Applied Science APSC 221 F 100 Engineering Economics Instructor Jim Martin

Assignment #4 Chapters 10, 11, 12 and 13

Tuesday, 15 November

Name: Matas Ignacio Gonzlez Prat - Exchange Student from Chile Student Number: 10034109

Solution Problem 1 Part a) Using the straight line method, we have that the amount of annual depreciation of the bulldozer is: ( )

Part b) The book value of the bulldozer at the beginning of the fourth year using the straight line method is: ( ) Part c) In order to calculate the annual depreciation for the third year using the declining balance method, the depreciation rate must be calculated first: ( )

Thus, the annual depreciation for the third year is: ( ) ( )

Part d) The book value at the beginning of the fourth year using the declining balance method is: ( ) ( ) ( )

Part e) For tax purposes, the declining balance method should be most beneficial because it provides a higher depreciation charge in the first year and then decreases it gradually (which is what business people want) 2

Solution Problem 2 Part a) The values ( ) and ( ) of the missing rows for the year can be computed as below: ( )

)](

( ) Where:

)] (

The following table shows the missing rows that were calculated using Excel: Year 6 7 8 9 Salvage 17,798 13,348 10,011 7,508 Maintenance 21,930 17,916 21,499 32,799

25,246 23,242 21,618 20,284

11,559 12,229 13,039 14,495

36,805 35,470 34,657 34,778

Table 2.1: EAC for the years 6 to 9

Part b) The economic life of the conveyor system is the number of years that minimizes . Checking the table given in the problem set, and the table with the missing rows showed above, the minimum economic life is 8 years. is $34,657. Consequently, the

Solution Problem 3 Part a) According to the half year rule, for any given year : ( ) ( ) ( ) ( ) ( ) ( ) ( )

Therefore, for a Year 2007 2008 2009 2010 2011

, the UCC can be calculated for the period 2008-2011: Purchases Sales Adjustments ---200,000 0 200,000 0 0 0 250,000 10,000 240,000 0 45,000 -45,000

-100,000 180,000 259,000 287,200

-20,000 36,000 51,800 57,440

0 180,000 144,000 332,200 229,760

Table 3.1: UCC for the period 2008 2011

Part b) The annual worth of the tax savings during this period can be calculated with the formula below: [ Thus, ( $ 13,876.12 ) ( )] ( )

Solution Problem 4

The following diagram illustrates the situation:

15,000 15,000 15,000 15,000 15,000 15,000 15,000 15,000 15,000 15,000

0 0 1 2 3 4 5 6 7 8 9 10

Years
The real cash flows are $15,000. The real MARR is: ( ( ) ) ( ( ) )

Therefore, the present value of the cash flows is: ( ) ( )