3. Peurifoy Method

Try these first

1. 1.

   What is depreciation?

   Hint

   Consider how equipment value changes over time.

2. 2.

   What does the time value method account for?

   Hint

   Think about how cash received today is more valuable than cash received in the future.

3. 3.

   What is the main objective of the Peurifoy method?

   • To minimize equipment costs
   • To accurately estimate equipment costs
   • To maximize investment returns

   Hint

   Think about how project budgeting relies on accurate cost estimation.

4. 4.

   True or False: The average annual investment method considers the timing of cash flows.

   • True
   • False

   Hint

   What happens to cash flows over time?

5. 5.

   A construction company purchases an excavator for $150,000 with a salvage value of$30,000 and an estimated life of 10 years. If the excavator is used for 2,000 hours a year, calculate the hourly depreciation.

   Hint

   Apply the straight-line method, just like we did before.

6. 6.

   Discuss the implications of using the average annual investment method compared to the time value method for a construction project with fluctuating cash flows due to seasonal work.

   Hint

   Think about how timing affects financing in construction projects.