MIE258/358 – Engineering Economics and Accounting – Assignment 5
Due: Nov. 28, 2016 – 5 pm - Submit to Drop-box: RS Building 2nd Floor
(In addition to the hard copy, a scanned copy must be submitted on BB)
Requests for re-grading to be submitted in tutorial, due date to
be announced.
Late submissions will not be accepted.
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Important: This is the cover page for your assignment write-up. Please
complete both sections 1 and 2 below and staple this page to your submission.
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MIE258/358 – Engineering Economics and Accounting – Assignment 5
A testing lab owns a hydraulic load frame, which was purchased for $35,000 early in the lab’s fiscal
year 4 years ago. The internal bookkeeping uses a sum of the year’s digits depreciation method
assuming a life of 12 years and zero salvage value. For tax purposes, it is being depreciated with a 25%
Capital Cost Allowance. The lab’s MARR is 10%. The fiscal year is the same as the calendar year.
The existing frame has no value on the second hand market. The operating and maintenance costs
for this frame have remained constant, and will remain constant, at $6500.00 per year.
There is a new load frame on the market, which sells for $40,000.00, and its operating and
maintenance costs are estimated to be $3,000 in the first year, increasing by 15% per year.
This new frame does have a second hand value estimated to decline 50% from the original purchase
price in the first year, a further 30% in the second year and subsequently level off at $12000.00 for
the foreseeable future.
a) What was the internal depreciation charge that was made last year?
b) What will the Undepreciated Capital Cost of the load frame be at the end of this fiscal year?
c) If the frame is in fact sold for $5,000 this year what final entry must be made on this year’s tax
filing?
d) What is the economic life of the new machine? Show all calculations or include a copy of your excel
spreadsheet.
e) Should the existing frame be replaced with the new model (now)? Justify your answer.