Depreciation and Annual Cost a) Discuss, in about 300 words, the various types of depreciation, and the role of depreciation in the asset valuation process. b) An asset owner has decided to purchase an item of equipment expected to work 1 400 hours per year (average) for a 10-year working life. Details are: Purchase price: $1, 250,000 Residual value: 310,000 i. Tabulate the depreciation and book value for the life of the item by each of the following methods: straight line declining balance sum of digits. ii. Tabulate details of a sinking fund to accumulate to the original purchase price less residual value assuming an interest rate of 6% iii. Draw a graph showing the book values in each of the above (plotted on the same graph for comparison) iv. Discuss, using examples, under what circumstances each depreciation method would be used to arrive at a fair value of the asset at any particular stage of its life. v. Assume the cost of money is 8%. Calculate the annual cost of purchasing this asset. State any assumptions. vi. Assume that this asset works for 1, 400 hours per year. Explain, giving an example calculation, how you evaluate the hourly cost of using this asset. How would this impact on any charges the asset owner might levy for its use? vii. Suppose at the end of the asset's life a cheaper alternative was available. This cheaper alternative has a similar life and standard of service to the existing asset. Discuss any implications for valuation of the existing asset