Reference no: EM13811952

1. A city government is considering two types of town-dump sanitary systems. Design A requires an initial outlay of $500,000 with annual operating and maintenance costs of $75,000 for the next 20 years; design B calls for an investment of $400,000 with annual operating and maintenance costs of $95,000 per year for the next 20 years. Fee collections from the residents would be $100,000 per year. The interest rate is 10%, and no salvage value is associated with either system.

By the benefit-cost ratio (BC(i)), which system should be selected?

2. Identify which of the following expenditures is considered as a capital expenditure that must be depreciated (capitalized):

a) Purchased a fax machine for $10,000.

b) Painted the warehouse building, both interior and exterior, for $20,000.

c) Installed a water dispenser in a company dining area for $2500.

d) Paid $15,000 to lease a dump truck for six months.

e) Purchased a patent on an energy-saving device over five years at a cost of $35,000.

f) Purchased a spare part for a framing machine for $4,000.

g) Repaved a parking lot for $20,000.

h) Installed a conveyor belt system to automate some part of a production processes for $50,000.

i) Purchased land to build a new facility for $350,000.

3. Consider the following date on an asset:

Cost of the asset, I: $150,000
Useful life, N: 5 years
Salvage value, S: $16,000

Compute the annual depreciation allowances and the resulting book values, using the following methods:

a) The straight-line depreciation method,

b) The double-declining-balance method.