Assignment Task: In the article - John Adams, Thomas Jefferson, and the Barbary Pirates: An Illustration of Relevant Costs for Decision Making.
Question 1: Evaluate Jefferson's reasoning in his 1822 letter. Do you agree with his logic? This letter does not specifically identify the cost of building the fleet, but it does compare the construction cost to the cost of maintaining the fleet. If the U.S. had taken Jefferson's advice, and burned its fleet in 1822, the cost to build a new one might have differed from the cost of building the original fleet. What is the relevance of each of these costs in the decision of whether to burn the fleet?
Question 2: Calculate the annual cost of fighting the pirates, based on the information Jefferson provides, using the accounting technique of asset capitalization and depreciation. First calculate the annual depreciation expense of the fleet by capitalizing the cost of construction, and depreciating this cost over the useful life of the ships. (Ignore the possibility that the pirates might sink any ships.) Then add to the depreciation expense the annual operating costs.