Incremental depreciation

The choice of cyclone modification, from an operating point of view, becomes a balance of incremental profit from increased conversion, versus catalyst makeup charges, and from a capital cost point of view, the price of either of the cyclone modifications, which must be depreciated. In many instances, there is an additional background time element, involving ongoing development of more attrition resistant and/or active catalyst. 

A = incremental cost of corrosion-resistant alloy materials A, = nonmanufacturing fixed-capital investment c0 = costs for operations (not including depreciation)... 

A second alternative requires construction and operation of new facilities at a location about 50 miles from the present plant. This alternative is attractive because cheaper labor is available at this location. The new facilities would cost 200,000. Labor costs would be 120,000 per year. Overhead costs would be 70,000 per year. Annual insurance and taxes would amount to 2 percent of the initial cost. All other costs except depreciation would be the same at each location. If the minimum return on any acceptable investment is 9 percent, determine the minimum service life allowable for the facilities at the distant location for this alternative to meet the required incremental return. The salvage value should be assumed to be zero, and straight-line depreciation accounting may be used. 

Value added is defined as the incremental value added by sectors or industrial processes, usually measured by the price differential between total cost of the input and price of the output (including services). This is also called gross value added. A net value added can also be defined by subtracting expenditures for depreciation from gross... 

Examination of the figures shows that, as capacity is increased, the reduction in cost plus return for the next increment of capacity is diminished. Looking at the incremental reduction in cost plus return against the incremental fixed capital used to produce it, it can be seen that the additional capital has less effect as the scale is increased. This is to be expected since, with increase in production scale and reduction in fixed costs per tonne of product, the scale-independent variable cost will dominate the cost plus return. Thus from Table 6.3 for the 50 kilotonnes/year plant the variable cost represents 53% of the cost plus return, and fixed costs (including depreciation and return) the balance of 47%. For the 100 kilotonnes/year plant the relationship of... 

Annual fuel inflation rate Interest rate or return on investment Effective income tax rate Physical plant depreciation period New insulation depreciation period Incremental equipment investment rate... 

---