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Questions and Answers of
Economics
A small company bought a 250-hp compressor in 1998 for $3000 when the M&S equipment cost index had a value of 1061.9. If the exponent in the cost-capacity equation is 0.32 and the M&S index value was
The cost for implementing a manufacturing process that has a capacity of 6000 units per day was $550,000. If the cost for a plant with a capacity of 100,000 units per day was $3 million, the value of
The delivered-equipment cost for setting up a production and assembly line for high-sensitivity, gas-damped accelerometers is $650,000. If the direct cost and indirect cost factors are 1.82 and 0.31,
The IT department allocates indirect costs to user departments on the basis of CPU time at the rate of $2000 per second. For the first quarter, the two heaviest-use departments logged 900 and 1300
In the early and conceptual design stages of a project, what are the cost estimates called? Approximately how close should they be to the actual cost?
The Office of the Undersecretary of Defense periodically releases unit cost data for use in military construction programs. If the unit cost for a satellite communications center (with shielding and
The Department of Defense uses area cost factors (ACFs) to adjust for differences in construction costs in different parts of the country (and world). The area cost factor for Andros Island in the
Preliminary cost estimates for jails can be made using costs based on either unit area (square feet) or unit volume (cubic feet). If the unit area cost is $185 per square foot and the average height
Electropneumatic general-purpose pressure transducers convert supply pressure to regulated output pressure in direct proportion to an electrical input signal. The cost of a certain transducer was
The ENR construction cost index for New York City had a value of 12,381.40 in February 2007. For Pittsburgh and Atlanta, the values were 7341.32 and 4874.06, respectively. If a general contractor in
A high-pressure stainless steel pump (1000 psi) with a variable-frequency drive (VFD) is installed in a seawater reverse-osmosis pilot plant that is recovering water from membrane concentrate at a
A mini wind tunnel for calibrating vane or hotwire anemometers cost $3750 in 2002 when the M&S equipment index value was 1104.2. If the index value is now 1620.6, estimate the cost of a tunnel twice
A closed-loop filtration system for waterjet cutting industries eliminates the cost of makeup water treatments (water softeners, reverse osmosis, etc.) while maximizing orifice life and machine
The equipment cost for a laboratory that plans to specialize in analyzing for endocrine disrupters, pharmaceuticals, and personal care products is $870,000. If the direct cost factor is 1.32 and the
A chemical engineer at Western Refining has estimated that the total cost for a diesel fuel desulfurization system will be $2.3 million. If the direct cost factor is 1.35 and the indirect cost factor
A mechanical engineer estimated that the equipment cost for a multitube cyclone system with a capacity of 60,000 cfm would be $400,000. If the direct cost factor is 3.1 and the indirect cost factor
What are the activity and the cost driver for the suggested baggage-traffic basis?Jet Green Airways historically distributes the indirect costs of lost and damaged baggage to its three major hubs
Multiple Choice Questions1. In the bottom-up approach to cost estimating:(a) Required price is an input variable.(b) Cost estimates are an output variable.(c) Required price is an output variable.(d)
Three years ago Medical Dynamics, a medical equipment unit of Johnson and Sons, Inc., initiated the manufacture and sales of a portable sterilization unit (Quik-Sterz) that can be placed in the
Visit the U.S. Internal Revenue Service website at www.irs.gov and answer the following questions about depreciation and MACRS by consulting Publication 946, How to Depreciate Property.(a) What is
A major energy production company has the following information regarding the acquisition of new-generation equipment.Purchase price = $580,000 Transoceanic shipping and delivery cost = $4300
Stahmann Products paid $350,000 for a numerical controller during the last month of 2007 and had it installed at a cost of $50,000. The recovery period was 7 years with an estimated salvage value of
An asset with an unadjusted basis of $50,000 was depreciated over ntax = 10 years for tax depreciation purposes and nbook = 5 years for book depreciation purposes. The annual depreciation was 1/n
Pneumatics Engineering purchased a machine that had a first cost of $40,000, an expected useful life of 8 years, a recovery period of 10 years, and a salvage value of $10,000. The operating cost of
An asset that is book-depreciated over a 5-year period by the straight line method has BV3 = $62,000 with a depreciation charge of $26,000 per year.Determine(a) The first cost of the asset(b) The
Lee Company of Westbrook, Connecticut, manufactures pressure relief inserts for thermal relief and low-flow hydraulic pressure relief applications where zero leakage is required. A machine purchased
Bristol Myers Squibb purchased a tablet-forming machine in 2008 for $750,000. The company planned to use the machine for 10 years; however, due to rapid obsolescence it will be retired after only 4
A special-purpose graphics workstation acquired by Busbee Consultants has B = $50,000 with a 4-year recovery period. Tabulate the values for SL depreciation, accumulated depreciation, and book value
A company owns the same asset in a U.S. plant (New York) and in a EU plant (Paris). It has B = $2,000,000 and a salvage value of 20% of B. For tax depreciation purposes, the United States allows a
When declining balance (DB) depreciation is applied, there can be three different depreciation rates involved-d, dmax, and d t. Explain the differences between these rates.
Equipment for immersion cooling of electronic components has an installed value of $182,000 with an estimated trade-in value of $40,000 after 15 years. For years 2 and 10, use DDB book depreciation
A cooling-water pumping station at the LCRA plant costs $600,000 to construct, and it is projected to have a 25-year life with an estimated salvage value of 15% of the construction cost. However, the
A video recording system was purchased 3 years ago at a cost of $30,000. A 5-year recovery period and DDB depreciation have been used to write off the basis. The system is to be replaced this year
An engineer with Accenture Middle East BV in Dubai was asked by her client to help him understand the difference between 150% DB and DDB depreciation.Answer these questions if B = $180,000, n = 12
Exactly 10 years ago, Boyditch Professional Associates purchased $100,000 in depreciable assets with an estimated salvage of $10,000. For tax depreciation, the SL method with n = 10 years was used,
Shirley is studying depreciation in her engineering management course. The instructor asked her to graphically compare the total percent of first cost depreciated for an asset costing B dollars over
Explain the difference between an accelerated depreciation method and one that is not accelerated. Give an example of each.
A company just purchased an intelligent robot, which has a first cost of $80,000. Since the robot is unique in its capabilities, the company expects to be able to sell it in 4 years for $95,000.(a)
Animatics Corp. of Santa Clara, California, makes small servo systems with built-in controllers, amplifiers, and encoders so that they can control entire machines. The company purchased an asset 2
A plant manager for a large cable company knows that the remaining invested value of certain types of manufacturing equipment is more closely approximated when the equipment is depreciated linearly
The manager of a Glidden Paint manufacturing plant is aware that MACRS and DDB are both accelerated depreciation methods; however, out of curiosity, she wants to determine which one provides the
Railroad cars used to transport coal from Wyoming mines to Texas power plants cost $1.2 million and have an estimated salvage value of $300,000. Develop the depreciation and book value schedules for
A 120-metric-ton telescoping crane that cost $320,000 is owned by Upper State Power. Salvage is estimated at $75,000.(a) Compare book values for MACRS and standard SL depreciation over a 7-year
Youngblood Shipbuilding Yard just purchased $800,000 in capital equipment for ship repairing functions on dry-docked ships. Estimated salvage is $150,000 for any year after 5 years of use. Compare
Basketball.com has installed $100,000 worth of depreciable software and equipment that represents the latest in Internet teaming and basket competition, intended to allow anyone to enjoy the sport on
A company has purchased special-purpose equipment for the manufacture of rubber products (asset class 30.11 in IRS Publication 946) and expects to use it predominately outside the United States. In
A coal mine purchased 3 years ago for $7 million was estimated to contain 4,000,000 tons of coal. During the past 3 years the amount of coal removed was 21,000, 18,000, and 20,000 tons, respectively.
NA Forest Resources purchased forest acreage for $500,000 from which an estimated 200 million board feet of lumber is recoverable. The company will sell the lumber for $0.10 per board foot. No lumber
A sand and gravel pit purchased for $900,000 is expected to yield 50,000 tons of gravel and 80,000 tons of sand per year. The gravel will sell for $6 per ton and the sand for $9 per ton.(a) Determine
Vesco Mineral Resources purchased mineral rights to land in the foothills of the Santa Cristo mountains. The cost of the purchase was $9 million. Vesco originally thought that it would be able to
A company owns gold mining operations in the United States, Australia, and South Africa. The Colorado mine has the taxable income and sales results summarized below. Determine the annual percentage
A highway construction company operates a quarry. During the last 5 years, the amount extracted each year was 60,000, 50,000, 58,000 60,000, and 65,000 tons. The mine is estimated to contain a total
A machine with a 5-year life has a first cost of $20,000 and a $2000 salvage value. Its annual operating cost is $8000 per year. According to the classical straight line method, the depreciation
A machine with a 10-year life is MACRS depreciated. The machine has a first cost of $40,000 with a $5000 salvage value. Its annual operating cost is $7000 per year, and d t for years 1, 2, and 3 is
A coal mine purchased for $5 million has enough coal to operate for 10 years. The annual cost is expected to be $200,000 per year. The coal is expected to sell for $150 per ton, with annual
The depreciation charge for a 5-year, straight line depreciated vehicle is $3000 in year 4. If the first cost was $20,000, the salvage value used in the depreciation calculation was closest to:(a) $0
The book value of an asset that was DDB depreciated over a 10-year period was $5832 at the end of year 4. If the first cost of the asset was $80,000, the salvage value that was used in the
For an asset that has B = $100,000, S = $40,000, and a 10-year depreciable life, the book value at the end of year 4 according to the MACRS method would be closest to ( d t values for years 1, 2, 3,
An asset that was depreciated over a 5-year period by the MACRS method had a BV of $33,025 at the end of year 3. If the MACRS depreciation rates for years 1, 2, and 3, were 0.20, 0.32, and 0.192,
A lumber company purchased a tract of land for $70,000 that contained an estimated 25,000 usable trees. The value of the land was estimated at $20,000. In the first year of operation, the lumber
An asset with a first cost of $50,000 and an estimated salvage value of $10,000 is depreciated by the MACRS method. If its book value at the end of year 3 is $21,850 and its market value is $25,850,
How does depreciation affect a company's cash flow?
What is the difference between book value and market value?
State the difference between book depreciation and tax depreciation.
State the difference between unadjusted and adjusted basis.
Explain why the recovery period used for tax depreciation purposes may be different from the estimated n value in an engineering economy study.
What is the depreciation rate dt per year for an asset that has an 8-year useful life and is straight line depreciated?
An asset has an unadjusted basis of $200,000, a salvage value of $10,000, and a recovery period of 7 years. Write a single-cell spreadsheet function to display the book value after 5 years of
What was one of the prime reasons that MACRS depreciation was initiated in the mid-1980s?
Multiple Choice Questions1. All of the following types of real property are depreciable except:(a) Warehouses(b) Land(c) Office buildings(d) Test facilities2. According to information on the IRS
A European manufacturing company has new equipment with a first cost of 12,000 euros, an estimated salvage value of 2000 euros, and a recovery period of 8 years. Use the SYD method to tabulate annual
Earthmoving equipment with a first cost of $150,000 is expected to have a life of 10 years. The salvage value is expected to be 10% of the first cost. Calculate (a) By hand (b) By spreadsheet the
If B = $12,000, n = 6 years, and S is estimated at 15% of B , use the SYD method to determine (a) The book value after 3 years (b) The rate of depreciation and the depreciation amount in year 4.
A robot used in simulated car crashes cost $70,000, has no salvage value, and has an expected capacity of tests not to exceed 10,000 according to the manufacturer. Volvo Motors decided to use the
A new hybrid car was purchased by Pedernales Electric Cooperative as a courier vehicle to transport items between its 12 city offices. The car cost $30,000 and was retained for 5 years.
An asset has a first cost of $45,000, a recovery period of 5 years, and a $3000 salvage value. Use the switching procedure from DDB to SL depreciation, and calculate the present worth of depreciation
If B = $45,000, S = $3000, and n = 5-year recovery period, use a spreadsheet and i = 18% per year to maximize the present worth of depreciation, using the following methods: DDB-to-SL switching (this
Hempstead Industries has a new milling machine with B = $110,000, n = 10 years, and S= $10,000. Determine the depreciation schedule and present worth of depreciation at i = 12% per year, using the
Reliant Electric Company has erected a large portable building with a first cost of $155,000 and an anticipated salvage of $50,000 after 25 years.(a) Should the switch from DDB to SL depreciation be
Verify the 5-year recovery period rates for MACRS given in Table. Start with the DDB method in year 1, and switch to SL depreciation when it offers a larger recovery rate.Depreciation Rates dt
A video recording system was purchased 3 years ago at a cost of $30,000. A 5-year recovery period and MACRS depreciation have been used to write off the basis. The system is to be prematurely
Use the computations in Equations [11] through [13] to determine the MACRS annual depreciation for the following asset data: B = $50,000 and a recovery period of 7years.
The 3-year MACRS recovery rates are 33.33%, 44.45%, 14.81%, and 7.41%, respectively.(a) What are the corresponding rates for the alternative MACRS straight line ADS method with the half-year
(a) Define the following tax terms: graduated tax rates, marginal tax rate, and indexing.(b) Describe a fundamental difference between each of the following terms: net operating income (NOI), taxable
Determine the average tax rate for a corporation that has taxable income of(a) $150,000(b) $12,000,000.
Determine the single-value effective tax rate for a corporation that has a federal tax rate of 35% and a state tax rate of 5%.
Identify the primary term described by each event below: gross income, depreciation , operating expense , taxable income , income tax , or net operating profit after taxes .(a) A new machine had a
Two companies have the following values on their annual tax returns.(a) Calculate the federal income tax for the year for each company.(b) Determine the percent of sales revenue each company will pay
Last year, one division of Hagauer.com, a dot-com sports industry service fi rm that provides real-time analysis of mechanical stress due to athlete injury, had $250,000 in taxable income. This year,
Yamachi and Nadler of Hawaii has a gross income of $7.5 million for the year. Depreciation and operating expenses total $4.3 million. The combined state and local tax rate is 7.2%. If an effective
Workman Tools reported a TI of $90,000 last year. If the state income tax rate is 7%, determine the(a) Average federal tax rate,(b) Overall effective tax rate,(c) Total taxes to be paid based on the
The taxable income for a motorcycle sales and repair business is estimated to be $150,000 this year. A single-value tax rate of 39% is used. A new engine diagnostics system will cost $40,000 and have
C.F. Jordon Construction Services has operated for the last 26 years in a northern U.S. state where the state income tax on corporate revenue is 6% per year. C.F. Jordon pays an average federal tax
Identify which of the following items are included in the calculation of cash flow before taxes (CFBT): operating expenses salvage value, depreciation, initial investment, gross income, tax rate.
What is the basic difference between cash flow after taxes (CFAT) and net operating profit after taxes (NOPAT)?
For a year in which there is no initial investment P or salvage value S, derive an equation for CFBT that contains only the following terms: CFAT, CFBT, D, and Te.
Determine the cash flow before taxes for Anderson Consultants when the cash flow after taxes was $600,000, asset depreciation was $350,000 and the company's effective tax rate was 36%.
Four years ago Sierra Instruments of Monterey, California spent $200,000 for equipment to manufacture standard gas flow calibrators. The equipment was depreciated by MACRS using a 3-year recovery
Four years ago a division of Harcourt-Banks purchased an asset that was depreciated by the MACRS method using a 3-year recovery period. The total revenue for year 2 was $48 million, depreciation was
Advanced Anatomists, Inc., researchers in medical science, is contemplating a commercial venture concentrating on proteins based on the new X-ray technology of free- electron lasers. To recover the
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