Determine ownership depreciation cost per hour for a D9N Caterpillar dozer with the following assumptions:

Engine 370 hp

Overall cost of Money 6% (i)

Useful life 5 years (n)

Hours used per year 2200

Initial Cost - $400,000 (P)

Cost of tires - $42,000 (for this formula you need to subtract the cost of the tires from the initial cost)

Estimated Salvage Value - $40,000 (F) or [(S) for AAI formula]

NOTE: Use the average of the Time Value Method and the Average Annual Investment (AAI) Method to determine the answer.

ANSWER: _________ $/HR

STEP 1 Time Value Method

Formulas:

(USCRF)

(USSFF)

Ownership Depreciation = = _________ $/HR

STEP 2 Average Annual Investment Method

Ownership Depreciation = Straight-Line Depreciation + Cost of Money

Cost of Money is a function of the Average Annual Investment (AAI).

AAI: AAI =

AAI = $ _______ /YR

Cost of Money = = $ ________ /HR

Straight-Line Depreciation:

Initial Cost Cost of Tires Salvage Value = $ ________

SL Depreciation per Year = $ _________ / YR

SL Depreciation per Hour = $ _________ / HR

Ownership Depreciation = Cost of Money + SL Depreciation

= $ ________ /HR

STEP 3 Calculate the Average of the Two Methods

Time Value Method Cost/HR = $________/HR

AAI Method Cost/HR = $________/HR

Average Cost/HR = $________/HR