Q1
Suppose that your company bought a product for $200,000 and put it in service in 2015. The product you bought will be depreciated with the GDS using half-year convention. The cost basis for the product is $200,000. If we assume that this product is an office furniture;
(1).What is the depreciation amount in the second year?
(2).What is the cumulative depreciation amount in the first three years?
(3).What is the estimated book value at the end of the year 2020?
Problem 2:
Assume that you have a company and need to evaluate two alternatives, an automatic machine (AM) and a manual machine (MM). Capital investment for these AM and MM are $23,000 and $8,000, respectively. The salvage values for AM and MM are $4,000 and $0, respectively. The AM has a predicted life of 10 years and only one employee will be required to operate this AM at a rate of $12 hourly. Estimated annual costs are $3,500 for the AM. Expected output from AM is 8 tons hourly.
On the other side, we need to have three employees to operate the MM at a rate of $8 hourly for each employee, and estimated useful life of MM is 5 years. Estimated annual costs are $1,500 for the MM. Expected output from MM is 6 tons hourly. If we assume that MARR is 10% yearly for AM and MM, what is the amount of output per year we need to have to choose the AM as the best alternative?
Problem 3:
Suppose that inflation rate is 8% annually and real interest rate is 1.85% annually. If we are planning to have an amount of money at the end of fifth year which has the same purchasing power as $1361.17 today, how much money we need to deposit each year in actual dollars for 5 years?