Depreciation problems

Unless the precautions given in the previous two examples are taken, some employees could be injured or killed. Even if this did not occur the financial loss could be large, since if critical pieces of equipment were damaged it might take months before they could be repaired or replaced and before production could be resumed. For each day the plant does not run a number of expenses continue (salaries, depreciation, taxes, insurance). There is also the problem of supplying customers. If a customer goes to another supplier it may be difficult to lure him back. As a result, the company may furnish him with product made at a distant plant and not charge him the extra transportation expenses, or may buy a competitor s product and sell it to the customer at less than the purchase price. 

Problem 2. Why is the salvage value not considered when depreciation for the double declining balance method is calculated ... 

Problem 5. Calculate the present value for the depreciation of a 16,000,000 plant. 

In Chapter 3 we discussed the formulation of objective functions without going into much detail about how the terms in an objective function are obtained in practice. The purpose of this appendix is to provide some brief information that can be used to obtain the coefficients in objective functions in economic optimization problems. Various methods and sources of information are outlined that help establish values for the revenues and costs involved in practical problems in design and operations. After we describe ways of estimating capital costs, operating costs, and revenues, we look at the matter of project evaluation and discuss the many contributions that make up the net income from a project, including interest, depreciation, and taxes. Cash flow is distinguished from income. Finally, some examples illustrate the application of the basic principles. 

Solution. This problem is a typical case of an ordinary annuity. Over a period of 10 years, equal payments must be made each year at an interest rate of 6 percent. After 10 years, the amount of the annuity must be equal to the total amount of depreciation. 

In this problem, the analysis is done on an after-tax basis. However, the analysis could just as well be performed on a before-tax basis, using a pre-tax hurdle rate. If so, the depreciation term would be zero and the net cash flow equation would simplify to... 

The following cost data, which include operating cost and depreciation of capital investment, pertain to Problem 14.1. Determine by the ordered branch search technique ... 

In view of this, the cross-linking is moderate. The usual range is abont 4%-8% of the total functional groups being cross-linked. This is a case of the classical trade-off between (1) low depreciation dne to extended life and (2) lower productivity due to lower flux. Another serious problem of PVA membrane is its extensive swelling in feed mixtures containing... 

Fixed cost excluding depreciation totals 3 075 million during most of the project life. No reduction is shown as a result of assumed operation problems with a new process. An increase is shown in the final three years as increased maintenance is needed. 

There are a number of traps in this process, a few of which we have already mentioned. Because Old Line has a plant-wide overhead rate, each department absorbs overhead based on the direct labor incurred in its department. The problem arises when overhead items are unevenly distributed among the departments. It so happens that Activity 5 is a heat-treat operation supported by a large investment in equipment. Activity 5 also consumes large amounts of energy. In Old Line s case, depreciation on the equipment, interest on debt taken on to finance the equipment, and the energy costs are all overhead items. Old Line allocates them over... 

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