56:054 Engineering Economy

Prof. O'Grady

 

  1.  
  1. What do the initials MACRS stand for? (10 points)

    2. Modified Accelerated Cost Recovery System

  2. Why would a corporation choose to use MACRS over straight-line depreciation? (10 points)
    1. the property class lives are less than the actual useful lives
    2. salvage values are assumed to be zero
    3. tables of annual percentages simplify computations
  1. What are three basic requirements that must be met for an asset to be depreciated? (10 points)
    1. For business use only
    2. have a useful life longer than 1 year
    3. must lost value over time

2.

Calculate the MACRS depreciation rates for a 5 year property, with 200% recovery period and using mid-year convention. Show how you obtained the figures. (20 points)

The first/last years of the recovery period are each assumed to be 1/2 years.

Year

DDB Calculation

SL Calculation

MACRS (r) % Rates

Cumul.

1

(1/2)(2/5)(1-0) = 0.2*

(1/2)(1-0)/5 = 0.1

20 %

20%

2

(2/5)(1-0.2) = 0.32*

(1-0.2)/4.5 = 0.1778

32%

52%

3

(2/5)(1-0.52) = 0.192*

(1-0.52)/3.5 = 0.1371

19.2%

71.2%

4

(2/5)(1-0.712) = 0.1152*

(1-0.712)/2.5 = 0.1152*

11.52%

82.72%

5

 

11.52*

11.52

94.24%

6

 

(1/2)11.52

11.52%

100.00%

 

 

 

  Row_of_Pebbles31D3.gif (8081 bytes)

  [ Professor O'Grady ]