# SIT’s Computer department recently purchased 100 new sever machines with a total initial cost of \$120,000, and with an estimated salvage value of \$20,000 at the end of 3- year useful life. Using the straight-line method: a. Calculate the annual depreciation allowances. [5 points] b. Calculate the annual book values. [5 points]

QUESTION 1:
SIT’s Computer department recently purchased 100 new sever machines with a total
initial cost of \$120,000, and with an estimated salvage value of \$20,000 at the end of 3-
year useful life. Using the straight-line method:
a. Calculate the annual depreciation allowances. [5 points]
b. Calculate the annual book values. [5 points]
QUESTION 2:
Fred’s Fabrication, Inc. bought a 50-kilowatt gas turbine that costs \$40,000. It is
estimated that the machine will have a depreciated salvage value of \$5,000 at the end
of its 3 – year useful life. Use the double-declining balance method:
a. Calculate the annual depreciation allowances. (Please ignore the depreciation
adjustment at this time) [4 points]
b. Calculate the annual book values. (Please ignore the depreciation adjustment at this
time) [4 points]
c. What do you notice about the book value at the end of year 3? What does this
mean? [1 + 1 point]
QUESTION 3:
Vermont wood manufactures Inc. purchased a light duty delivery truck for \$32,000 that
has a 7-year service life. At the end of 7th year, it will be sold at a salvage value of
\$3000. The light duty delivery truck has been depreciated according to a 7 year MACRS
property class.
a. Calculate the annual depreciation allowances over 7 years. [4 points]
b. Calculate the annual book values over 7 years. [4 points]
c. Is there a capital gains or loss and if so, how much is the gain / loss? [1 + 1 point]
Name___________________________________________ E-mail______________________________
EM 600 Engineering Economics and Cost Analysis, Homework #3
School of Systems & Enterprises, Stevens Institute of Technology
“I PLEDGE MY HONOR THAT I HAVE ABIDED BY THE STEVENS HONOR SYSTEM”
By: ______________________________
EM600-Fall13-HW3 Page 2 of 2
QUESTION 4:
Honda Motor Co. decides to upgrade a new assembly line to increase productivity. This
upgrade requires an initial investment of \$3,200,000 and will generate \$850,000
revenue in year 1 of operation. The system will incur \$250,000 in maintenance
expenses in the first year. The investment cost of all the equipment necessary for
upgrading is classified as a 5-year MACRS property for depreciation purposes. The
expected salvage value of all the equipment is \$200,000 at the end of the project life.
The firm pays taxes at a rate of 25% and has a MARR of 18%. The assembly lines have
a 6-year life. Revenues for operation will increase at 5% each year and expenses will
increase at 3% each year. A loan is to be taken out for 28% of the initial investment
amount. The loan will be repaid over the project life in yearly payments, at an annual
interest rate of 15%.

Calculate the following:
a. Determine the allowed depreciation amounts [3 points]
b. Calculate the repayment schedule of the loan [3 points]
c. Calculate the Gains/Losses associated with Asset Disposal [1 points]
d. Create the Income Statement [5 points]
e. Develop a Cash Flow Statement [5 points]
f. Is this project justifiable at a MARR of 18%?
 Calculate the NPV [1 point]
 Calculate IRR [1 point]
 State your conclusions. [1 point]

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