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engineering economy

Basics Of Engineering Economy 3rd Edition Leland T. Blank, Anthony Tarquin - Solutions

11. 13.33 (Spreadsheet exercise) James Engineering, Inc. wants to determine a method for book depreciation of newly acquired assets. Use a 6-year study period to determine the total taxes and PW of taxes for the depreciation methods SL, SYD, MACRS, and DDB for the information below. Using the
10. 13.32 Review the situation in problem 13.21. In part (c), you were asked to not consider the realized market value when calculating TI and taxes. Now, consider the fact that the equipment was sold for $188,000 after 2 years of service. Determine the CFAT series and after-tax ROR for the 2 years
9. 13.31 Cheryl, a CVE student who is working on an ISE minor, is studying depreciation and taxes in her engineering management course. The assignment is to demonstrate (1) that shorter recovery periods require the same total taxes as longer periods, and (2) that PWtax is lower for shorter recovery
7. 13.29 You use a car in a majority of your sole-proprietorship engineering consulting business. This business asset cost you $80,000 new and has been depreciated according to MACRS over a 5-year period. At the end of year 4, you bought a replacement vehicle and traded for a net positive $15,000
6. 13.28 (Spreadsheet exercise) Develop a spreadsheet that calculates the PW values for each country requested above. Which country offers the lowest PW of taxes?
5. 13.27 For Country 3, DDB depreciation for the 5 years is $40,000, $24,000, $14,400, $1,600, and 0, respectively. Determine the (a) CFAT series, and (b) PW of depreciation, taxes, and CFAT series.
4. 13.26 For Country 2, MACRS depreciation for the 4 years is $33,333, $44,444, $14,815, and $7,407, respectively. Determine the (a) CFAT series, and (b) PW of depreciation, taxes, and CFAT series using the 9% MARR.
3. 13.25 For Country 1, SL depreciation is $20,000 per year. Determine the (a) CFAT series, and (b) PW of depreciation, taxes, and CFAT series using the 9% MARR.
2. 13.24 Last month, a company specializing in wind power plant design and engineering made a capital investment of $400,000 in physical simulation equipment that will be used for at least 5 years and then sold for approximately 25% of its first cost. By law, the assets are MACRS depreciated using
1. 13.23 Though capital gains and losses can make significant differences in CFAT estimates in the year that a depreciable asset is salvaged, as a matter of practice, gains and losses are generally neglected when the evaluation is performed. Why is this? Identify one recommended exception to this
10. 13.22 (Spreadsheet exercise) You work for Tamimi Industries, which purchased robotics equipment for $500,000 six years ago. The equipment is in place today, has a total 10-year useful life, no salvage value, and a 5- year MACRS recovery period. The effective tax rate is 21% and the actual cash
9. 13.21 Two years ago, on the recommendation of its construction engineers, United Homebuilders purchased dumpsters, a front-end loader, and truck to carry off construction debris, rather than subcontracting the service. Information is listed for the project with depreciation determined using
7. 13.19 Estimate the gross income for Bling Enterprises, which reports a CFAT of $2.5 million, $900,000 in expenses, $900,000 in depreciation charges, and has an effective tax rate of 26.4%.8. 13.20 Advanced Anatomists, Inc., researchers in medical science, is contemplating a commercial venture
5. 13.17 (Spreadsheet exercise) Develop a spreadsheet that includes cash flow, PW, and ROR values for both before-tax and after-tax analyses. Was the equipment purchase justified in both analyses? (Note: If you worked 13.14(b), the CFAT series is already developed.) 6. 13.18 Fill in the missing
4. 13.16 Compare the after-tax ROR values using both methods— approximated from the CFBT values using the before-tax ROR and Te, and directly from the CFAT series.
3. 13.15 Utilize the CFAT and PW value to determine if the investment was justified with taxes considered.
2. 13.14 Calculate MACRS depreciation and estimate the CFAT series over the 4 years. Remember to include the salvage in year 4 as income that increases taxes. Develop CFAT using (a) tabulation, and (b) a spreadsheet.
1. 13.13 Use the CFBT and PW value to determine if the equipment investment exceeded the MARR.
3. 13.12 Estimate the CFAT for a company that has taxable income of $120,000, depreciation of $133,350, and an effective tax rate of 25% per year.
2. 13.11 Approximate the after-tax ROR on a project that had a first cost of $500,000, a salvage value of 20% of the first cost after five years and annual CFBT of $230,000. Assume the company had a 25% effective tax rate.
1. 13.10 Estimate the approximate after-tax rate of return for a project that has a before-tax ROR of 18%. Assume the company’s effective tax rate is 27% and it uses MACRS depreciation for an asset that has a $40,000 salvage value.
9. 13.9 It is a known fact that the U.S. graduated tax rates require people with higher income levels to pay more federal taxes. A common question:Just how much more of total income and TI does it take? Consider the salary, investment dividend, and other income data shown for two families; both
8. 13.8 Last year Jennifer was single; this year she is married to Manish. Salaries, deductions, and other information are listed for the two years. Determine the federal income taxes for each when they file as “Single” and now as “Married filing jointly” using Table 13.2 rates. Is there a
7. 13.7 Sameh, a U.S. citizen and an engineer living outside the country while working for GE International, Inc., files his U.S. income tax return as “Unmarried.” This last year, his salary was $103,000 and his retirement investment portfolio provided net supplemental dividends of $10,500. (a)
6. 13.6 Last year, Marylynn opened Baron’s Appliance Sales and Service. Her tax accountant provided the year’s results: Gross income = $320,000 Business expenses = $149,000 MACRS depreciation = $95,000 Average federal tax rate = 21% Average state tax rate = 6% City and county flat tax rates
5. 13.5 Helical Products makes machined springs with elastic redundant elements so that a broken spring will continue to function. The company has gross income of $450,000 with expenses of $260,000 and depreciation of $58,000. (a) Approximate the company’s total taxes for an effective tax rate of
4. 13.4 Last year, an investor in rental property had gross income of $160,000 with the following expenses: maintenance $22,000, insurance $5000, management $10,000, utilities $16,000, and debt service (interest) $19,000. Income taxes totaled $8000. What was the net operating income for the year?
3. 13.3 In 2020, Carl is thinking of purchasing stock in Harrison Engineering and 3-D Imaging. From the annual report, he deduced that GI = $4.9 million, E = $2.1 million, and D = $1.4 million. If the average federal tax rate is 21% and state/local tax rates total 9.8%, estimate (a) federal income
2. 13.2 In 2018, its first year of operation, Borsberry Construction had a federal tax bill of $84,000. What was the company’s taxable income?
1. 13.1 Divisions of Doubleday Computers and Merritt-Douglas Computing make competing products for the commercial IT market worldwide. Use the data for each company to determine (a) the effective total tax rate Te for Doubleday, and (b) the taxable income (in millions) for MerrittDouglas.Page 415
7. Evaluate alternatives using after-tax economic value-added analysis Value-added analysis
6. Use a spreadsheet to perform an after-tax analysis that includes multiple elements: revenue and expenses, depreciation, debt capital, effective interest rates, MARR, and inflation. Expanded after-tax evaluation
5. Determine the weighted average cost of capital (WACC), the debtequity (D-E) mix, and the tax effects of debt capital. Cost of capital and taxes
4. Evaluate a defender and challenger in an after-tax replacement study. After-tax replacement
3. Demonstrate the tax impact of depreciation recapture, accelerated depreciation, and a shortened recovery period. Taxes and depreciation
2. Calculate after-tax cash flow and evaluate alternatives. CFAT analysis
1. Correctly use the basic terminology and income tax rates for corporations and individuals. Terminology and rates
11. 12.50 A construction stone quarry in central Texas can use a percentage depletion rate of 5% of gross income or a cost depletion rate of $1.28 per ton. The quarry’s first cost was $3.2 million; estimated total tonnage is 2.5 million tons; tonnage this year is 65,000; gross income is $40 per
10. 12.49 Rayonier Forrest Resources purchased a tract of land for $700,000. It contains a total of 25,000 harvestable timber trees. The value of the land, over and above the value of the timber, is estimated to be $200,000. In the first year of operation, Rayonier harvested 7000 trees. The cost
9. 12.48 A coal mine purchased for $5 million has enough coal to operate for 10 years. The AOC is estimated at $200,000 per year. The coal is expected to sell for $150 per ton, with annual production expected to be 10,000 tons. Coal has a depletion percentage rate of 10%. The percentage depletion
8. 12.47 A delivery truck with a basis of $155,000 is depreciated using the unit-of-production method with an estimated life of 200,000 miles. Recorded miles for the first 2 years are 31,100 and 48,450 miles. The total depreciation for the 2 years is closest to: 1. $61,650 2. $75,100 3. $102,650 4.
7. 12.46 An automated assembly robot that cost $400,000 has a depreciable life of 5 years with a $100,000 salvage value. If the MACRS depreciation rates for years 1, 2, and 3 are 20%, 32%, and 19.2%, respectively, the book value of the robot at the end of year 3 is nearest to: 1. $102,000 2.
6. 12.45 The depreciation in year 4 for a 5-year DDB-depreciated asset is $3000. The first cost of the asset is closest to: 1. $8,000 2. $25,000 3. $35,000 4. $120,000
5. 12.44 A machine with a 10-year life has a basis of $40,000, a $5000 salvage value, and an AOC of $7000 per year. If the MACRS depreciation rates for years 1, 2, and 3 are 10.00%, 18.00%, and 14.40%, respectively, the depreciation for year 3 is closest to: 1. $5800 2. $7200 3. $8500 4. $9300
4. 12.43 A machine with a 5-year life has a first cost of $20,000, a $2000 salvage value, and an AOC of $8000 per year. According to the classical straight line method, the depreciation in year 2 is nearest to: 1. $2800 2. $3600 3. $4500 4. $5300
4. Test facilities
3. 12.42 All of the following types of real property are depreciable, except: 1. Warehouses 2. Land 3. Office buildings
2. 12.41 If SL and DDB depreciation rates for 5-year recovery periods are calculated, the rates (in percent) for the second year are: 1. 20% and 40% 2. 40% and 24% 3. 20% and 24% 4. 20% and 16%
1. 12.40 Standard straight line depreciation of a $100,000 asset takes place over a 7-year recovery period. If the salvage value is 20% of first cost, the book value at the end of 3 years is closest to: 1. $57,140 2. $65,715 3. $11,430 4. $80,000
6. 12.39 Hardwick Mines operates a stone and gravel quarry. During the first 2 years the tonnage extracted each year was 60,000 and 65,000 tons. The quarry, estimated to contain a total of 2.5 million tons of usable material, had an initial cost of $3.2 million. The company reported a per-ton gross
5. 12.38 Carrolton Oil and Gas, an independent oil and gas producer, is approved to use a 20% of gross income depletion allowance. The write-off last year was $700,000 on its horizontal directional drill wells. Determine the estimated total reserves in barrels if the volume pumped last year
4. 12.37 NA Forest Resources purchased forest acreage for $500,000 from which an estimated 200 million board feet of lumber are recoverable. The company will sell the lumber for $0.10 per board foot. No lumber will be sold for the next 2 years because an environmental impact statement must be
3. 12.36 For the last 10 years, Am-Mex Coal has used the cost depletion factor of $2500 per 100 tons to write off the investment of $35 million in its Pennsylvania anthracite coal mine. Depletion thus far totals $24.8 million. A new study to appraise mine reserves indicates that no more than
2. 12.35 Four years ago, International Uranium Mines paid $350 million for rights to remove uranium ore (pitchblende) for refining into U3O8 (triuranium octaoxide) for use in nuclear reactor fuels. Of the estimated 6.5 million pounds of ore available, the yearly amounts removed in pounds were
1. 12.34 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 tonnage of coal removed was 21,000, 18,000, and 20,000 tons, respectively. The gross income obtained in these 3 years was $257,000 for the first year, $320,000 for
3. 12.33 ConocoPhillips alkylation processes are licensed to produce high-octane, low-sulphur blend stocks domestically and internationally. Halliburton Industries has newly licensed alkylation equipment costing $1 million per system at its Moscow, Houston, and Abu Dhabi refinery service
2. 12.32 Henry has an assignment from his boss at Czech Glass and Wood Sculpting to evaluate depreciation methods for writing off the $200,000 first cost of a newly acquired Trotec CO2 laser system for engraving and cutting. Productive life is 8 years and salvage is estimated at $10,000. Henry
1. 12.31 For a country that allows switching between declining balance (not DDB) and straight line, determine if a switch is advisable in year 2. The asset has a first cost of $100,000, a 5-year recovery period, and a $10,000 salvage value.
4. 12.30 (Spreadsheet exercise) If B = $400,000, n = 8 years, S = 10% of B, and MARR = 12% per year, use the depreciation and book value schedule for the SYD method to determine the following: 1. Percent of the basis removed in the first 50% of useful life. 2. Depreciation rate for each year 1
3. 12.29 Sensing equipment to measure carbon monoxide levels across the refinery cost $160,000. A salvage of $15,000 after its 10-year useful life is estimated. Determine the depreciation amounts for years 2 and 7 for the SYD method using (a) equations, and (b) spreadsheet functions.
2. 12.28 (Spreadsheet exercise) Pinnacle Consultants purchased a new Toyota hybrid car for employees use for $35,000 with the expectation to retain it for 5 years or 100,000 miles. No salvage is considered for depreciation purposes. The question is which book depreciation method to use: DDB for 5
1. 12.27 Three years ago, you purchased woodworking equipment for your hobby activities and side-line business in cabinetry. The cost was $70,000, no salvage was expected, and the estimated capacity was 10,000 operating hours. Determine the annual depreciation and book value using the
7. 12.26 Fairfield Properties owns real property that is MACRS depreciated with n = 39 years. They paid $3.4 million for the apartment complex and hope to sell it after 10 years of ownership for 50% more than the book value at that time. Determine the anticipated profit, that is, the difference
6. 12.25 A company report stated that a $140,000 asset purchased 3 years ago has a current MACRS book value that is 57.6% of the asset’s basis. (a) Determine the recovery period used. (b) Determine the depreciation next year using the VDB spreadsheet function.
5. 12.24 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 years ago that has a 5-year recovery period. Depreciation by the MACRS method for year 2 is
4. 12.23 A plant manager for a large cable company knows that the remaining invested value of quality assurance equipment is more closely approximated when the equipment is depreciated linearly by the SL method compared to a rapid write-off method like MACRS. Therefore, he keeps two sets of books,
3. 12.22 In 2020, the Del Norte Brick Co. constructed a new bridge across the Rio Grande River for improved access to the company’s property. The cost of the bridge was $850,000, and it has a 15-year recovery period for MACRS depreciation. Determine (a) the depreciation for year 5, and (b) the
2. 12.21 An automated shuttle retriever system has a first cost of $350,000, a depreciable life of 5 years, and an expected salvage value of 20% of the first cost. Using the MACRS depreciation rates of 20.00, 32.00, 19.20, and 11.52% for years 1, 2, 3, and 4, respectively, determine (a) the
1. 12.20 A company just purchased an intelligent robot, which has a first cost of $280,000. Since the robot is unique in its capabilities, the company expects to be able to sell it in 4 years for $200,000. 1. If M&O costs are $100,000 per year, determine the MACRS depreciation in year 2. Assume the
6. 12.19 An engineer with Accenture was asked by her client to help him understand the difference between DDB and 150% DB depreciation. Answer his questions if B = $180,000, n = 12 years, and S = $30,000. 1. What are the book values after 12 years for both methods? 2. How do the estimated salvage
5. 12.18 Checker LLC has purchased a $100,000 asset to be located in its Italian facility. Either of two classical depreciation models is allowed: SL depreciation over 5 years with a salvage of $10,000 or DDB depreciation over 6 years with no salvage considered. The asset is expected to be
4. 12.17 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 with a trade-in value of $5000. What is the difference between the book value and the
3. 12.16 Determine the original basis of a machine that is used for making spill containment pallets if its book value in year 3 is $25,000. The machine has a 5-year recovery period and the DDB method is applied.
2. 12.15 An asset that has a first cost of $200,000 and an expected salvage value of 10% of the first cost is book depreciated over a 10-year period. Determine the book value in year 4 for (a) DDB, and (b) DB at 175% of the SL rate.
1. 12.14 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 to determine the depreciation by (a) equations, and (b) spreadsheet functions.
8. 12.13 A straight line depreciated asset has a basis of $200,000, a salvage value of $10,000, and a recovery period of 7 years. Write two separate single-cell spreadsheet functions: one to display the depreciation each year, and another to display the book value for year 5.
7. 12.12 You are curious about the original cost of the digital imaging equipment you use at the First National Bank, where you work part time while in college. Accounting cannot tell you the cost, but they know the annual depreciation over an 8-year period is $18,900 per year. If all items are
6. 12.11 An asset owned by Photon Environmental is book depreciated by the SL method over a 5-year period with book values of $296,000 and $224,000 in years 2 and 3, respectively. Determine (a) the salvage value used in the calculation, and (b) the asset’s basis.
5. 12.10 The Lee Company of Westbrook, Connecticut, manufactures pressure relief inserts for use where zero leakage is required. A machine purchased 3 years ago has been book depreciated by the straight line method using a 5-year useful life. The book value at the end of year 3 is $30,000, and the
4. 12.9 Your self-employed friend tells you that he is able to legally use depreciation write-off on his income tax return for his car, since he uses it part time in his business travel. He said the car is book depreciated over a 5-year period by the SL method and after 3 years it has BV3 = $62,000
3. 12.8 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 the machine is expected to be $15,000 per year. If the inflation rate is 6% per year and the
2. 12.7 Goodson Healthcare purchased a new sonogram imaging unit for $300,000 and a truck body and chassis for an additional $100,000 to make the unit mobile. The unit-truck system will be depreciated as one asset. The functional life is 8 years, and the salvage is estimated to be 10% of the
1. 12.6 KTT Chomerics manufactures transient voltage suppressors with high-power surge capability. The company uses the straight line method for book depreciation purposes. Newly acquired equipment has a first cost of $240,000 with a 3-year life and a $30,000 salvage value. Determine the
5. 12.5 Stahmann Products paid $350,000 for a numerical controller and had it installed at a cost of $50,000. The recovery period was 7 years with an estimated salvage value of 10% of the original purchase price. Stahmann sold the system 4 years after it was purchased for $45,000. State the
4. 12.4 Cyber Source Computer Services paid P = $40,000 for its networked computer system. Both tax and book depreciation accounts are maintained. The annual tax depreciation rate is based on the previous year’s book value (BV), while the book depreciation rate is based on the original first cost
3. 12.3 Cyber Manufacturing is purchasing a complete video borescope system for applications that require work in places that eyes cannot see. The purchase price is $8000, shipping and delivery is $300, installation cost is $1200, tax recovery period is 5 years, book depreciation period is 10
2. 12.2 Puritan Cement Products placed a new sand sifter into production 3 years ago. It had an installed cost of $100,000, a life of 5 years, and an anticipated salvage of $20,000. Book depreciation charges for the 3 years are $40,000, $24,000, and $14,000, respectively. Determine the book value
1. 12.1 Yvonne drives for Uber, Lyft, and other ride-sharing companies; plus she operates an e-commerce franchise. Calculate her federal taxes on income of $150,000, expenses of $45,000, and depreciation of $60,000 at a tax rate of 25%.
8. Utilize percentage depletion and cost depletion methods for natural resource investments. Depletion
7. Use various spreadsheet functions to develop depreciation and book value schedules. More spreadsheets
6. Switch from one classical method to another; explain how MACRS uses switching. Switching
5. Understand the basis and application of the unit-of-production method and the sum-of-years-digits method. UOP and SYD methods
4. Apply the Modified Accelerated Cost Recovery System (MACRS). MACRS
3. Apply the declining balance method. Declining balance
2. Apply the straight line method. Straight line
1. Understand and use the basic terminology of depreciation. Terminology
15. 11.60 A blanket IDC rate is correctly applied when the following is/are present:– The same basis is used for multiple cost centers 2 – An easy to calculate and use IDC rate is desirable 3 – Sensitivity to different functions and contributions is needed 1. 1 2. 2 3. 3 4. 1 and 2
14. 11.59 If a hospital cafeteria is the activity to receive indirect cost allocation for the year, cost driver(s) for the ABC method that seem reasonable may be: 1 – Number of cafeteria employees 2 – Number of meals 3 – Hospital patient volume 1. 1 2. 2 3. 3 4. 1 and 2
13. 11.58 If engineering change order is the activity for an application of the ABC method of indirect cost allocation, the most reasonable cost driver(s) may be: 1 – Number of changes processed 2 – Size of the workforce 3 – Management cost to process the change orders 1. 1 2. 2 3. 3 4. 1 and
12. 11.57 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 seconds, respectively. If the IT indirect budget for the year is $8.0 million, the

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