Chapter 1 Section 1

Chapter 1 Index

EC_1		ELEMENTARY FUNCTIONS
	*LinDepr.xls*	Linear Depreciation
	*LinBE.xls*	Break-even: Manufacturer’s Perspective, Accountant’s Perspective
	*LinSD.xls*	Linear Supply & Demand
	*Highway.xls*	Addition of Functions
	*Plot.xls (GrafCalc.xls)*	General Graphing Utilities
	*NonlinBE.xls*	Finding Break-even Points
	*NonlinSD.xls*	Finding the Equilibrium Point
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Linear Depreciation

LinDepr.xls

Open the file LinDepr.xls and click the tab LD 1

SITUATION 1: Straight-line depreciation is one of several methods used by accountants to calculate the remaining value of an asset over a given time period. The eight points on the graph in Table & Graph 1, show a range of dollar values over the useful life of the equipment. The horizontal axis is measured in years with time zero corresponding to the time of the original purchase. The vertical axis shows the residual value in dollars (sometimes called the book value or undepreciated value). Each of these nine points appear to be on a line and the slope of this line is negative.

LinDepr.xls - Table & Graph 1

QUESTIONS:

For questions 1- 4 that follow, assume cost = $60,000, scrap value = $8,000, and useful life = 8 years
1.	What is the slope of the line and what does it represent?
2.	What does the vertical intercept of this line represent?
3.	What is the residual value of the equipment at the end of year two?
4.	What is the residual value of the equipment at the end of year six?
5.	Edit the cells for original cost and scrap value so that the cost is $62,000 and the scrap value at the end of eight years is $4,000.
	a) What would be the slope of the depreciation line?
	b) What would be the vertical intercept?

SITUATION 2: In LD 2 the cost, scrap value, and useful life are randomly generated. Pressing the <F9> key generates new values for cost, scrap value and useful life and these new parameters are used to generate the table and graph in Table & Graph 2.

LinDepr.xls - Table & Graph 2

QUESTIONS:

6.	Explain, in words, how the slope for linear depreciation is calculated from the three given parameters: cost, scrap value, and useful life in years.
7.	For the asset shown in *Table & Graph 2*, write a simplified formula for its residual value as a function of time in years (represented by the variable t).
8.	Suppose the original cost of a piece of equipment is $50,000 and the equipment depreciates $6000 per year until it is sold for $8000.
	a) What is its useful life?
	b) Is this problem easier to solve with a spreadsheet or with pencil and paper?

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