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2 cards from this section. Quick, good the night before a test.
Define ownership costs in construction.
Think of expenses that occur even when the equipment is idle.
What is the salvage value?
Consider the value you can recoup when selling old equipment.
What are ownership costs?
Think about costs that persist even if the machine stands idle.
True or False: Depreciation is a cash flow expense.
Consider how it affects financial statements but not actual cash on hand.
A construction contractor estimates the initial cost of a crane to be $150,000 with a salvage value of $30,000 and a useful life of 10 years. Calculate the total depreciation over its useful life and annual depreciation using the straight line method.
Use the straight line formula: (Initial Cost - Salvage Value) / Useful Life.
A piece of equipment sees heavy use in its first three years. If its initial cost is $200,000, salvage value is $20,000, and its useful life is 5 years, calculate the first-year depreciation using the sum of the years digit method.
Recall the formula for the sum of the years digit method and note that the total years left determines the factor.
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