3.1.1. Depreciation Calculation

Try these first

1. 1.

   What is the formula for calculating depreciation using the straight-line method?

   Hint

   Think about the basics of how value decreases over time.

2. 2.

   What is salvage value?

   Hint

   Consider what you expect to get after you've used the equipment.

3. 3.

   What method is primarily used for estimating depreciation in this section?

   • Reduced Cost Method
   • Straight-Line Method
   • Declining Balance Method

   Hint

   Recall the method discussed in class.

4. 4.

   True or False? The Peurifoy method involves consideration of time value in its calculations.

   • True
   • False

   Hint

   Think about what the 'time value of money' concept means.

5. 5.

   An excavator has an initial price of $300,000, a salvage value of$20,000, and a recommended useful life of 10 years with a tire cost of $15,000. Calculate the yearly depreciation and discuss the factors impacting this equipment's operating cost.

   Hint

   Break down the questions and remember to exclude tire costs from ownership cost calculations.

6. 6.

   If the fuel cost for a machine operating under heavy loads is expected to be $120 per hour, while under normal conditions it’s$80 per hour, explain how the choice of operating conditions affects the project budget.

   Hint

   Consider the differences in operational scenarios and their direct financial implications.