Depreciation Table 3. Property Class and Factor Machinery's Handbook, 31st Edition
150
ACRS Classes of Depreciable Property
Depreciation Factor for Recovery Period ( n )
Property Class
Year ( x )
Personal Property
3 Years 5 Years 7 Years 10 Years 1 33.33% 20.00% 14.29% 10.00% 2 44.45% 32.00% 24.49% 18.00% 3 14.81% 19.20% 17.49% 14.40%
Handling device for food and beverage manufacture, plastic products, fabricated metal products Automobiles, trucks, computer, aircraft, petroleum drilling equipment, research and experimentation equipment Office furniture, fixtures, and equipment Railroad cars, manufacture of tobacco products Telephone distribution line, municipal sewers plant
3
4 5 6 7 8 9
7.41% 11.52% 12.49% 11.52%
5
11.52% 8.93% 9.22% 5.76% 8.92% 7.37%
7
8.93% 6.55% 4.46% 6.55%
10
6.56% 6.55% 3.28%
15 20
10 11
Municipal sewers
Evaluating Alternative Investments When two or more mutually exclusive investments compete for limited funds, a number of ways are available to select the best investment options from a group of proposals. This section discusses such strategies for analyzing alternatives and making decisions to max- imize net value. Net Present Value.— One of the easiest ways to compare mutually exclusive investment alternatives is to calculate and compare the net present value of each. Net present value (NPV) is most frequently used to determine the present value of future money receipts and disbursements. Three economic criteria for present worth analysis are described: (1) If investment cost is the same, only the output money is considered. (2) If the output result is known, then the investment cost is minimized. (3) If neither input nor output is fixed, then the output minus the input is maximized. The NPV method is widely applied when the lifespans of the alternative proposals are the same. In selecting the project with the highest NPV from several projects that all achieve the same outcome, a common rate of interest called the minimum attractive rate of return (MARR) is used. The MARR is a rate that companies strive to earn on all their invest- ments. This rate usually is a rate above the interest rate that a company’s idle cash will be earning in a risk-free environment. Small-scale companies also may seek investments based on the MARR to achieve returns slightly above the average rate the same money would earn in the stock market on a long-term basis. The symbols used for the following calculations are defined: P = present value NPV = net present value AR = annual revenue AE = annual expense G A = uniform gradient of expense given annual amount A TR = tax rate as percentage i = interest rate (as a decimal) n = number of payments or periods L = salvage value With uniform annual expense before tax NPV P – AR AE – ( ) 1 i + ( ) n – 1 i 1 i + ( ) n -------------- L 1 i + ( ) n --------- + + = [ ]
A G [
]
With uniform gradient on annual expense before tax With uniform annual expense after tax With uniform gradient on annual expense after tax
n – 1 i 1 i + ( ) n --------------
1 i + ( )
L 1 i + ( ) n ---------
NPV P – AR AE – – + =
+
[
]
1 i + ( ) n – 1 i 1 i + ( ) n --------------
L 1 i + ( ) n ---------
NPV P – AR AE – ( ) 1 TR – ( ) + =
+
[
]
) n – 1 i 1 i + ( ) n --------------
1 TR – ( ) 1 i + (
L 1 i + ( ) n ---------
NPV P – AR AE – – + = A G
+
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