1. Depreciation Calculation

Try these first

1. 1.

   Calculate the depreciation for a machine valued at 50,000 with a depreciation rate of 0.4.

   Hint

   Use the formula D = P × r.

2. 2.

   What does book value represent?

   Hint

   Think about how depreciation affects asset value.

3. 3.

   What is the formula for calculating depreciation?

   • D = P × r
   • D = P + r
   • D = P - r

   Hint

   Think of how we previously calculated the first year's depreciation.

4. 4.

   Does the book value increase over time?

   • True
   • False

   Hint

   Recall our definition of book value.

5. 5.

   You have a piece of equipment that costs 500,000, with a depreciation rate of 30%. Calculate the book value after 4 years assuming straight-line depreciation.

   Hint

   Calculate yearly depreciation and subtract from the original cost.

6. 6.

   A machine has an operational cost of 20,000 per year and a maintenance cost of 5,000. If the depreciation is 25,000 each year, how long can this machine be economically viable before replacement is needed?

   Hint

   Look for cumulative costs exceeding those of a new machine.