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Chapter 03c - Equipment Cost PDF
Chapter 03c - Equipment Cost PDF
EQUIPMENT COST
A. J. Clark School of Engineering Department of Civil and Environmental Engineering
3c By
Dr. Ibrahim Assakkaf
ENCE 420 Construction Equipment and Methods
Spring 2003
Department of Civil and Environmental Engineering
University of Maryland, College Park
EQUIPMENT COST
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CHAPTER 3c. EQUIPMENT COST Slide No. 96
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Ownership Cost
Ownership cost accrue whether or not
the equipment is used
Capital cost (purchase price)
Salvage value
Depreciation tax shield
Overhead expenses
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CHAPTER 3c. EQUIPMENT COST Slide No. 98
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TAX TERMS
TAX TERMS
) Basis is a way of
measuring your
investment in an
asset for tax
purposes.
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CHAPTER 3c. EQUIPMENT COST Slide No. 100
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COST BASIS
COST BASIS
Like-kind Exchange
iYou exchange a machine having
a book value of $50,000 for a new
machine having a fair market
value of $80,000.
iThe basis of the new machine is
$50,000.
iThis is the basis (value) for tax
depreciation purposes.
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CHAPTER 3c. EQUIPMENT COST Slide No. 102
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COST BASIS
Property Plus Cash
iIf you trade a machine
and pay money, the basis
of the machine you receive
is the basis of the machine
you traded increased by
the money paid.
COST BASIS
Property Plus Cash
iIf you trade a machine and
pay money:
iBasis (new)
new machine =
+$
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CHAPTER 3c. EQUIPMENT COST Slide No. 104
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COST BASIS
Sale and Purchase
iIf you sell a machine as
a separate transaction
you would pay tax on the
cash received which is
greater than the basis
(book value).
COST BASIS
Sale and Purchase
iIf you sell a machine as
a separate transaction
and the amount received
is less than the basis
(book value), it is your
lost.
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CHAPTER 3c. EQUIPMENT COST Slide No. 106
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COST BASIS
Sale and Purchase
COST BASIS
Repairs
iIf a repair increases the
value of your machine,
makes it more useful, or
lengthens its life, the repair
cost must be capitalized
and depreciated.
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CHAPTER 3c. EQUIPMENT COST Slide No. 108
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COST BASIS
Repairs
iThe repair cost must be
capitalized and
depreciated.
iYou increase the basis of
the machine by the cost of
the repair.
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CHAPTER 3c. EQUIPMENT COST Slide No. 110
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CHAPTER 3c. EQUIPMENT COST Slide No. 112
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Property Classes
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CHAPTER 3c. EQUIPMENT COST Slide No. 114
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DEPRECIATION METHOD
DEPRECIATION RATES
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CHAPTER 3c. EQUIPMENT COST Slide No. 116
Example 8
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Example 8 (contd)
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$65,000
Value when sold = $125,000 - $65,000 = $60,000
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CHAPTER 3c. EQUIPMENT COST Slide No. 118
Example 9
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Example 9 (contd)
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CHAPTER 3c. EQUIPMENT COST Slide No. 120
Example 9 (contd)
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Example 9 (contd)
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$102,120
Tax saving from depreciation = = $10.21 / hr
4 yr(2,500 hr/yr )
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CHAPTER 3c. EQUIPMENT COST Slide No. 122
PRACTICAL EXERCISE
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PRACTICAL EXERCISE
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CHAPTER 3c. EQUIPMENT COST Slide No. 124
PRACTICAL EXERCISE
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PE-COST OF MONEY
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(INTEREST RATE)
Sources of capital funds:
9 Borrow
9 Earnings
9 Equity
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CHAPTER 3c. EQUIPMENT COST Slide No. 126
PE - Ownership Cost
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PE - Ownership Cost
CHAPTER 3c. EQUIPMENT COST Slide No. 127
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CHAPTER 3c. EQUIPMENT COST Slide No. 128
PE - Ownership Cost
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PE - Ownership Cost
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CHAPTER 3c. EQUIPMENT COST Slide No. 130
PE - Ownership Cost
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PE - Ownership Cost
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CHAPTER 3c. EQUIPMENT COST Slide No. 132
PE - Ownership Cost
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PE - Ownership Cost
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$116,071- $9,828
=
2,000 hr / yr
$53.12 / hour
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CHAPTER 3c. EQUIPMENT COST Slide No. 134
PE - Ownership Cost
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AAI
P(n + 1) + S (n 1)
AAI =
2n
AAI = average annual investment method
P = purchase price
S = salvage value
n = life in years
PE - Ownership Cost
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AAI
$440,000(5 + 1) + $60,000(5 1)
AAI =
25
P = $440,000
S = $60,000
n = 5 years
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CHAPTER 3c. EQUIPMENT COST Slide No. 136
PE - Ownership Cost
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AAI
$440,000( 6) + $60,000( 4 )
=
10
AAI = $288,000/yr
PE - Ownership Cost
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AAI
Investment Cost
$288,000 / yr 10%
=
2,000 hr / yr
$14.40 / hour
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CHAPTER 3c. EQUIPMENT COST Slide No. 138
PE - Ownership Cost
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AAI
Depreciation
$470,000
- $30,000 tires
- $60,000 salvage
= $380,000
PE - Ownership Cost
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AAI
Hourly Depreciation
$380,000
=
5 yr 2,000 hr / yr
$38.00 / hr
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CHAPTER 3c. EQUIPMENT COST Slide No. 140
PE - Ownership Cost
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AAI
Hourly Depreciation
$14.40 + $38.00 =
$52.40/hr
PE - OWNERSHIP COST
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Comparison
Time Value Method $53.12/hr
Average Annual
Investment Method $52.40/hr
Difference between the methods $0.72
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CHAPTER 3c. EQUIPMENT COST Slide No. 142
PE - OPERATING COST
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PE - OPERATING COST
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CHAPTER 3c. EQUIPMENT COST Slide No. 144
PE - OPERATING COST
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PE - OPERATING COST
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Repair
Hourly depreciation $38.00
$38.00 X 70% =
$26.60 per hour
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CHAPTER 3c. EQUIPMENT COST Slide No. 146
OPERATING COST
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Fuel
Operating factor, 0.5
Cost of fuel $1.02 per gal
OPERATING COST
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CHAPTER 3c. EQUIPMENT COST Slide No. 148
OPERATING COST
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OPERATING COST
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Tire Repair
Tire repairs 14% of tire depreciation
Life of tires 4,000 hours
$30,000
= $7.50 per hour
4,000 hr
$7.50 X 14% = $1.05 per hour
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CHAPTER 3c. EQUIPMENT COST Slide No. 150
OPERATING COST
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Tire Depreciation
OPERATING COST
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Tire Depreciation
0.10(1 + 0.10) 5
$30,000
(1 + 0.10) 5
1 = $? / hr
2,000 hr
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CHAPTER 3c. EQUIPMENT COST Slide No. 152
OPERATING COST
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Tire Depreciation
$30,000 0.2637975
= $3.96 / hr
2,000 hr
OPERATING COST
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Tire Depreciation
Second set: (purchased at time 2 yr)
must first calculate value at time zero.
$30,000
P=
(1 + i ) n
$30,000
P= = $24,793
(1 + 0.10 ) 2
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CHAPTER 3c. EQUIPMENT COST Slide No. 154
OPERATING COST
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Tire Depreciation
$24,793 0.2637975
= $3.27 / hr
2,000 hr
OPERATING COST
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Tire Depreciation
Third set: (purchased at time 4 yr)
must first calculate value at time zero.
$30,000
P=
(1 + i ) n
$30,000
P= = $20,490
(1 + 0.10 ) 4
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CHAPTER 3c. EQUIPMENT COST Slide No. 156
OPERATING COST
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Tire Depreciation
Third set: (purchased at time 4 yr)
Spread the cost over the live of the machine
-- Uniform series capital recovery factor
$20,490 0.2637975
= $2.70 / hr
2,000 hr
OPERATING COST
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Tire Depreciation
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CHAPTER 3c. EQUIPMENT COST Slide No. 158
PE Operating Cost
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Repair $26.60/hr
Fuel 7.14
Lube Oils 0.98
Tire repair 1.05
Tire dep. 9.93
PE SCRAPER COST
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