Worksheet 2.6
DEPRECIATION AND AFTER-TAX ANALYSIS
Name:
CH040
ENGINEERING ECONOMY
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For each of the following problems, (a) draw the cash flow diagram; (b) present clean and clear manual solutions to the problem; (c)
highlight the final answer (only the final answer as required by the problem) by enclosing it within a box.
1.
A set of office equipment costs $100,000 and has a useful life of 6 years. Its estimated market value at the end of the 6th year is
$5,000. Determine the depreciation amount on the 4th year and the book value at the end of the 3rd year using:
a. Straight Line Method
b. Double Declining Balance Method
c. Sum-of-Years Digits Method
d. Declining Balance Method with Switchover to SL
e. MACRS GDS (assume that the assets will be disposed of on the 3rd year)
f. MACRS ADS
2.
A project for a specialized product estimated to have a short market life has the following information. Use the PW method to
determine the minimum amount of equivalent uniform annual revenue required to justify the project economically.
 First cost: $1,500,000
 Cost of depreciable property: $800,000
 Property class of depreciable property: GDS 3 years
 Annual O&M costs: %600,000 on the first year, increasing at a rate of 5% per year thereafter
 Selling price of depreciable property at the end of 3 years: $300,000
 Income tax rate: 35%
 MARR after taxes: 30%
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