Salvage value

Ultimately, the process might be permanently shut down or given a major revamp. This marks the end of the project, H. If the process is shut down, working capital is recovered, and there may be salvage value, which would create a final cash inflow at the end of the project. 

Life cycle cost analysis is the proper tool for evaluation of alternative systems (11,12). The total cost of a system, including energy cost, maintenance cost, interest, cash flow, equipment replacement and/or salvage value, taxes, inflation, and energy cost escalation, can be estimated over the useflE life of each alternative system. A Hst of life cycle cost items which may be considered for each system is presented in Tables 3 and 4. Reference 14 presents a cash flow analysis which also includes factors such as energy cost escalation. 

Inflationary Effects. Inflation can have a significant effect on the profitabiUty of a venture. However, the U.S. federal tax laws do not allow for indexing the inflationary effects on depreciation schedules, salvage values, replacement costs, or taxable income. Inflation rates can vary unpredictably with time and can differ for certain revenues of expenditures. 

Estimated salvage value of plant items S = 20,000 Working capital C yc = 10,000 Cost of land Cj, = 20,000... 

Example 2 Net Present Value for Different Depreciation Methods The following data descrihe a project. Revenue from annual sales and the total annual expense over a 10-year period are given in the first three columns of Table 9-5. The fixed-capital investment Cpc is 1,000,000. Plant items have a zero salvage value. Working capital C vc is 90,000, and cost of land C/ is 10,000. There are no tax allowances other than depreciation i.e., is zero. The fractional tax rate t is 0.50. 

The annual rate of straight-line depreciation of the fixed-capital investment Cfc, from 1,000,000 at startup to a salvage value S, of zero at the end of a productive life s of 10 years, is given hy... 

General Collection efficiency Legal limitations such as best available technology Initial cost Lifetime and salvage value Operation and maintenance costs Power requirement Space requirements and weight Materials of construction Reliability Reputation of manufacturer and guarantees Ultimate disposal/use of pollutants... 

Economic factors include (a) the capital cost of the control technology (b) the operating and maintenance costs of the technology and (c) the expected lifetime and salvage value of the equipment. 

The absorber and packing are assumed to depreciate linearly over five years with negligible salvage values. 

Assume negligible salvage value and a five-year linear depreciation. 

Replacement of the steam-jet ejector with a vacuum pump. The distillation operation will not be affected. The operating cost of the ejector and the vacuum pump are comparable. However, a capital investment of 75,000 is needed to purchase the pump. For a five-year linear depreciation with negligible salvage value, the annualized fixed cost of the pump is I5,000/year. 

As an illustration, let us revisit the heat exchanger example. The initial fixed cost of the system is 193,700. If the salvage value of the system is negligible and... 

The operating cost includes items like fuel and other consumables. Maintenance costs are obviously repairs and periodic reworking of the structure. After the passage of years, nearly the entire aircraft structure has often been replaced part by parti The final category is the salvage value. What is the object worth at the end of its life Consider an aluminum airplane for which some scrap value exists at the end of its useful life. When the structure is no longer suitable to be flown, and there we... 

Salvage value of collected material high. Same equipment used on raw grinding before calcining. 

Materials involved vary widely. Collector selection may depend on salvage value, toxicity, sanitation yardsticks. 

Salvage value of the whole seasonal storage S = 50,000 Useful life of the system n = 15 years depreciation over 10 years Discount rate i = 8%... 

Determine the net present value of the two plants in Example 10-4 if the plants only operate 7 years and have no salvage value. Assume that money is worth 7% per year and the profits become available at the end of the year. 

In determining the total amount of depreciation an estimate must be made of the value of the asset when it is taken out of service. This is called the salvage value. Usually before an item can be sold it must be disconnected and removed from the system. When the cost of these operations is subtracted from the salvage value, the net salvage value is obtained. The total amount to be depreciated is then the original cost minus net salvage value. 

Since the net salvage value may be difficult to determine, a company may estimate the cost of removing and disposing of the used equipment as up to 10% of... 

The capitalized cost of a plant is 12,000,000. Its estimated salvage value is 1,000,000 and its estimated net salvage value is 400,000. What is the total amount that can be depreciated ... 

In this case, if the company has an option it would choose to use the salvage value, since this would result in a higher present value after taxes. 

A plant costs 6,000,000 and is expected to last 6 years. Its salvage value is negligible. Calculate the rate of depreciation using the double declining balance method. 

In the remaining-life plan the depreciation for any year is the book value reduced by an acceptable salvage value times a fraction. The numerator of the fraction, as before, is the number of years of useful life remaining. The denominator is the sum of the digits from one to the number of years of useful life remaining. For this plan the denominator is not a constant. 

The determination of the present value for the depreciation plans is one of the best ways of comparing depreciation plans. In calculating the present value it will be assumed that depreciation expenses remain in the company and effectively reduce income taxes. If the income tax rate on earnings is 48%, then the amount of income tax saved when depreciation expenses are increased by 100 is 48. Therefore, the net savings of including depreciation as an expense is 48% of all depreciation. If the net salvage value is less than the book value after depreciation, the difference is an income and is subject to taxation. Since the amount will be the same for each of the depreciation schemes, it will not be considered in comparing the different methods. 

A plant costs 14,000,000 and has a salvage value of 2,000,000 and a net salvage value of 1,000,000. The expected life of the plant is 8 years. Calculate the present value for the depreciation plans presented in this chapter. Assume that the interest rate is 10% and the income tax rate is 48% of all earnings. 

The amount to be depreciated may be calculated by two means. If the net salvage value is used the amount that can be depreciated is... 

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