Homework Answers
| Model 1: | Life span is 4 years | ||||||||
| First cost $13500 | |||||||||
| Maintenance cost is $1250 for 2nd, 3rd and 4th year. In year 1 no maintenance cost. | |||||||||
| Salvage value will be determined through declining balance depreciation method(d = 20%) | |||||||||
| Model 2 | Life span is 3 years | ||||||||
| First cost $15000 | |||||||||
| Maintenance cost is $700 for every year | |||||||||
| Salvage value will be determined through SLM. Salvage value after 1 year is $13100 | |||||||||
| Particulars | Year | ||||||||
| Model 1 | 0 | 1 | 2 | 3 | 4 | ||||
| First Cost | 13500 | 0 | |||||||
| Maintenance cost | 1250 | 1250 | 1250 | ||||||
| Depreciation | 2700 | 2160 | 1728 | 1382.4 | |||||
| Salvage Value | 5529.6 | ||||||||
| Total cost | |||||||||
| 13500 | 2700 | 3410 | 2978 | 8162 | |||||
| MARR @10% | 0.909 | 0.826 | 0.751 | 0.683 | |||||
| Net cost | 13500 | 2454.545 | 2818.182 | 2237.415 | 5574.756 | ||||
| 26584.9 | |||||||||
| First cost | 13500 | ||||||||
| (-)Depreciation @20% | 2700 | 2160 | 1728 | 1382.4 | |||||
| Net value of Model1 | 10800 | 8640 | 6912 | 5529.6 | |||||
| Salvage value at the end of yr4 | 5529.6 | ||||||||
| Model 2 | 0 | 1 | 2 | 3 | |||||
| First Cost | 15000 | ||||||||
| Maintenance cost | 700 | 700 | 700 | ||||||
| Depreciation | 1900 | 5000 | 5000 | ||||||
| Salvage Value | 3100 | ||||||||
| Total cost | 15000 | 2600 | 5700 | 8800 | |||||
| MARR @10% | 0.909 | 0.826 | 0.751 | ||||||
| Net cost | 15000 | 2363.636 | 4710.744 | 6611.57 | |||||
| 28685.95 | |||||||||
| Depreciation for first year | 1900 | (15000-13100) | |||||||
| Depreciation for 2nd & 3rd yr | 5000 | (15000/3) | |||||||
| Salvage value | ( First cost- Depreciation ) | ||||||||
| ( 15000 -(1900+5000+5000)) | |||||||||
| 3100 | |||||||||
| By looking the above calculations Model 1 should be opted as Model 2 is expensive comparatively. | |||||||||
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