Heavy Equipment (construction) - Equipment Cost

Equipment Cost

  • purchase expense
  • salvage value
  • tax savings from depreciation
  • major repairs and overhauls
  • property taxes
  • insurance
  • storage

Depreciation can be calculated several ways, the simplest is the straight-line method. The annual depreciation is constant, reducing the equipment value annually. The following are simple equations paraphrased from the Peurifoy & Schexnayder text:

m = some year in the future

N = equipment useful life (years)

and Dn = Annual depreciation amount

Dn = purchase price / N

Book value (BV) in year m

BVm = purchase price - (m x Dn)

example:

N = 5

purchase price = $350,000

m = 3 years from now

BV3 = $350,000 - ( 3 x $350,000/5) = $140,000

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