data for Q1

Homework #4 1) Consider again the two backhoes from Problem 1 of Homework #3. For each option, compute the asset value at the end each year using the following depreciation methods: a) Straight-line depreciation b) Sum-of-years-digits method c) Double-declining-balance method Based on your results, answer the following questions: d) For Backhoe 1, which depreciation method results in the largest depreciation amount in year 3? e) For Backhoe 2, how much of a greater tax benefit (in terms of a greater tax deduction of the depreciation amount) would you receive in year 4 by using the sum-of-years-digits method to compute your depreciation compared to using the straight-line depreciation method? 2) Bank of America Plaza in Atlanta (the tallest building in a U.S. state capital) cost $150 million to build in 1992. What would it have cost to build this building twenty years later, in 2012? 3) For a project planned in Ashland, KY, the following costs have been estimated: $150,000 for concrete materials and installation, $50,000 for masonry materials, and $40,000 for wood materials. Assuming that a site for the project will be chosen solely based on the cost for these three scopes of work, would you recommend building the project in Hazard, KY (despite its name), instead? Use the cost indexes distributed in class. 1) A contractor is considering two backhoes for purchase, with the investment details for each backhoe shown in the table below: Initial cost Annual benefit Annual maintenance cost Salvage value Useful life (years) Backhoe 1 $200,000 $105,000 $5,000 $50,000 6 Backhoe 2 $450,000 $140,000 $20,000 $150,000 12 Considering benefits and costs over the full lifetimes of the backhoes, which backhoe should the contractor purchase based on: a) Benefit-cost ratio b) Benefit-cost difference c) Benefit-cost ratio using incremental analysis d) Benefit-cost difference using incremental analysis In general, the time value of money with an appropriate discount rate should be considered when making calculations of this sort. However, for simplicity, you need not consider any discount rate in your calculations for this