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Expert: - 1/24/2009


Question
Construction Equipment ran an article on calculating equipment depreciation. The delivered price of a crawler dozer tractor is $135,000 with a residual value of 35%. The useful life of the tractor is 7,700 hours.

a) what is the total amount of depreciation allowed?
b)what is the amount of depreciation per hour?
c) operating the tractor an average of 7 1/4 hours a day for 5 days a week, what would be the depreciation for the first year?
d) if the hours of operation were the same each year, what would be the total number of years of useful life for the tractor?
Round years to the nearest whole number.


Answer
This is a devaluation of a tractor problem.

The original price was $135,000.
The price at the end will be 35% percent of this value,
which is 47,250.
The useful life of the tractor is 7,700 hours.

a) The total amount of depreciation allowed is 100% - 35%.

b) The depreciation per hour is 135,000(1-0.35)/7,700.

c) Here, the operation of the tractor is 37.5 hours a week.  That comes out to only about 4 years.  Assuming the same depreciation every year, take 135,000 / 4 to get the depreciation for the first year.  If you desire a formula that gives a different value for each year, take 47,250/135,000 to get the amount of depreciation overall.  Take this number to the 0.25 to get the effect of each year.  Multiply this amount by 135,000 to get the value after the first year.  The difference between that value and the 135,000 original value is the amount of loss in the first year.

d) See first sentence in c.  About 4 years.

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