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Tutorial 2

The document presents a tutorial for CSE422 on infrastructure management, containing three questions related to investment analysis and depreciation methods for construction equipment. It includes calculations for prospective rates of return, book values using different depreciation methods, and cost comparisons between new and used graders. Each question requires detailed financial analysis and decision-making based on the equipment's costs and operational parameters.

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30 views4 pages

Tutorial 2

The document presents a tutorial for CSE422 on infrastructure management, containing three questions related to investment analysis and depreciation methods for construction equipment. It includes calculations for prospective rates of return, book values using different depreciation methods, and cost comparisons between new and used graders. Each question requires detailed financial analysis and decision-making based on the equipment's costs and operational parameters.

Uploaded by

wiltonliu.lpc
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PPT, PDF, TXT or read online on Scribd
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TUTORIAL 2

CSE422
INFRASTRUCTURE MANAGEMENT
Q1

 A contractor is considering making a $300,000


investment in used construction plant. He
estimates that his annual maintenance and
repair costs for the plant will be $60,000 and
that his annual income from the plant will be
$115,000. He estimates that he can get 8 years
of use out of the plant, but that there will be no
salvage value at the end of the 8 years. What
would be the contractor's prospective rate of
return from this investment?
2
Q2

 A contractor has purchased a tractor for $180,000 and


anticipates using it for 9 years. Salvage value of the tractor
at the end of the 9 years is estimated to be $27,000.
a. Using the straight-line method of depreciation accounting,
determine the book value of the tractor at the end of each of the 9
years.
b. using the sum-of-the-year method of depreciation accounting,
determine the book value of the tractor at the end of each of the 9
years.
c. For the above question, using the declining-balance method (X=1.8)
of depreciation accounting, determine the book value of the tractor
at the end of each of the 9 years.
3
Q3
 A contractor has decided to add a grader to his equipment fleet. He could purchase
ei­ther a new or a used one. Interest, insurance, and taxes total about 12%, and the
con­tractor anticipates using the grader about 2,000 hours per year. Which of the
following alternatives should the contractor select (show your detailed
calculation)?
 a. The new grader costs $1,200,000 to purchase and is expected to have a useful
life of 16,000 hours of operation. Tires cost $50,000 to replace (estimated to occur
after every 4,000 hours of use) and major repairs will be needed after 8,000 hours
of operation at a cost of $60,000. Fuel, oil, and minor maintenance cost about
$152.50 for each hour the grader is used. Estimated salvage value at the end of
16,000 hours of operation is $100,000.
 b. The used grader costs $750,000 to purchase and is expected to have a useful life
of 8,000 hours of operation. Tires cost $50,000 to replace (estimated to occur after
every 4,000 hours of use). Fuel, oil, and minor maintenance cost about $182.50 for
each hour the grader is used. Estimated salvage value at the end of 8,000 hours of4
use is $80,000.

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