3/21/2003CVEN349-Maxwell1 Equipment Costs Part 6.3 Follows Halpin Chapter 9 November 6, 2002.
-
Upload
tiffany-mathews -
Category
Documents
-
view
214 -
download
1
Transcript of 3/21/2003CVEN349-Maxwell1 Equipment Costs Part 6.3 Follows Halpin Chapter 9 November 6, 2002.
![Page 1: 3/21/2003CVEN349-Maxwell1 Equipment Costs Part 6.3 Follows Halpin Chapter 9 November 6, 2002.](https://reader036.fdocuments.us/reader036/viewer/2022082816/56649d0b5503460f949deba9/html5/thumbnails/1.jpg)
3/21/2003 CVEN349-Maxwell 1
Equipment Costs
Part 6.3Follows Halpin Chapter 9
November 6, 2002
![Page 2: 3/21/2003CVEN349-Maxwell1 Equipment Costs Part 6.3 Follows Halpin Chapter 9 November 6, 2002.](https://reader036.fdocuments.us/reader036/viewer/2022082816/56649d0b5503460f949deba9/html5/thumbnails/2.jpg)
3/21/2003 CVEN349-Maxwell 2
RAT #06-03-1 Take out a sheet of paper, put your
name on it, … … Take 1-minute to list the 4 classes
of procurement costs. Pass to the aisle, etc.
![Page 3: 3/21/2003CVEN349-Maxwell1 Equipment Costs Part 6.3 Follows Halpin Chapter 9 November 6, 2002.](https://reader036.fdocuments.us/reader036/viewer/2022082816/56649d0b5503460f949deba9/html5/thumbnails/3.jpg)
3/21/2003 CVEN349-Maxwell 3
Purpose Equipment Costs are an important
part of project cash flow. Equipment Costs consists of : Fixed
Ownership Cost and Variable Operating Costs
Depreciation is a major component of fixed costs and has a significant affect on project cash flow.
![Page 4: 3/21/2003CVEN349-Maxwell1 Equipment Costs Part 6.3 Follows Halpin Chapter 9 November 6, 2002.](https://reader036.fdocuments.us/reader036/viewer/2022082816/56649d0b5503460f949deba9/html5/thumbnails/4.jpg)
3/21/2003 CVEN349-Maxwell 4
Learning Objectives Be able to find the economic life of
an asset. Be able to identify various cost
components Be able to compute depreciation
by the St-line or Production Rate Method.
![Page 5: 3/21/2003CVEN349-Maxwell1 Equipment Costs Part 6.3 Follows Halpin Chapter 9 November 6, 2002.](https://reader036.fdocuments.us/reader036/viewer/2022082816/56649d0b5503460f949deba9/html5/thumbnails/5.jpg)
3/21/2003 CVEN349-Maxwell 5
General Concept The right Equipment is required for
efficient operation – get the job done.
The right Ownership Model is required for efficient cash-flow – be able to make some money.
The right Ownership Model is required for the optimum balance sheet – be able to borrow money
![Page 6: 3/21/2003CVEN349-Maxwell1 Equipment Costs Part 6.3 Follows Halpin Chapter 9 November 6, 2002.](https://reader036.fdocuments.us/reader036/viewer/2022082816/56649d0b5503460f949deba9/html5/thumbnails/6.jpg)
3/21/2003 CVEN349-Maxwell 6
General Types of Costs Ownership -- Fixed Costs Operation & Maintenance -- Variable
Costs Overhead Costs – G&A Profit – Why is this a cost to the job?
Let’s look at in detail.
![Page 7: 3/21/2003CVEN349-Maxwell1 Equipment Costs Part 6.3 Follows Halpin Chapter 9 November 6, 2002.](https://reader036.fdocuments.us/reader036/viewer/2022082816/56649d0b5503460f949deba9/html5/thumbnails/7.jpg)
3/21/2003 CVEN349-Maxwell 7
Ownership or Fixed Costs (Independent of amount of Use.)
Debt Service – Interest, etc. Insurance – PD, PL, Other Depreciation & Federal Income
Taxes – More about this later Taxes – Local Taxes
![Page 8: 3/21/2003CVEN349-Maxwell1 Equipment Costs Part 6.3 Follows Halpin Chapter 9 November 6, 2002.](https://reader036.fdocuments.us/reader036/viewer/2022082816/56649d0b5503460f949deba9/html5/thumbnails/8.jpg)
3/21/2003 CVEN349-Maxwell 8
O&M or Variable Costs (Varies with the amount of use.)
Fuel Maintenance Repairs Deterioration or “Wear-Out” based
on use
![Page 9: 3/21/2003CVEN349-Maxwell1 Equipment Costs Part 6.3 Follows Halpin Chapter 9 November 6, 2002.](https://reader036.fdocuments.us/reader036/viewer/2022082816/56649d0b5503460f949deba9/html5/thumbnails/9.jpg)
3/21/2003 CVEN349-Maxwell 9
Overhead & Profit
Profit and Loss Center Concept Overhead
Project Overhead P&L Center Overhead
Profit Job Profit P&L Center Profit
![Page 10: 3/21/2003CVEN349-Maxwell1 Equipment Costs Part 6.3 Follows Halpin Chapter 9 November 6, 2002.](https://reader036.fdocuments.us/reader036/viewer/2022082816/56649d0b5503460f949deba9/html5/thumbnails/10.jpg)
3/21/2003 CVEN349-Maxwell 10
Economic Life Of Equipment
Assume that a bulldozer costs $400k Assume that its O&M costs are $30k
for the first year and increase $30k per year
Then the cash stream looks like this:
![Page 11: 3/21/2003CVEN349-Maxwell1 Equipment Costs Part 6.3 Follows Halpin Chapter 9 November 6, 2002.](https://reader036.fdocuments.us/reader036/viewer/2022082816/56649d0b5503460f949deba9/html5/thumbnails/11.jpg)
3/21/2003 CVEN349-Maxwell 11
Resulting Cash Stream (Ignore the effect of interest)
EOY Ave Cost/yr O&M/yr Total
1 $400 $30 $430
2 $200 $60 $260
3 $133 $90 $223
4 $100 $120 $220
5 $80 $150 $230
6 $67 $180 $247
![Page 12: 3/21/2003CVEN349-Maxwell1 Equipment Costs Part 6.3 Follows Halpin Chapter 9 November 6, 2002.](https://reader036.fdocuments.us/reader036/viewer/2022082816/56649d0b5503460f949deba9/html5/thumbnails/12.jpg)
3/21/2003 CVEN349-Maxwell 12
Plot of Cash StreamEconomic Life of Equipment
0
50
100
150
200
250
300
350
400
450
500
1 2 3 4 5 6 7 8 9 10
Time in Years
Co
st
of
Do
zer
The Economic Life is the year where the overall cost is the least
![Page 13: 3/21/2003CVEN349-Maxwell1 Equipment Costs Part 6.3 Follows Halpin Chapter 9 November 6, 2002.](https://reader036.fdocuments.us/reader036/viewer/2022082816/56649d0b5503460f949deba9/html5/thumbnails/13.jpg)
3/21/2003 CVEN349-Maxwell 13
PAT #6.3.2 Take out a piece of paper, write your
name and team, and … … Assume a tower crane costing
$1-million with a 1-st year O&M cost of $100k. If the O&M costs increase by $50k/yr thereafter, what is the economic life of the crane?
You have 5-minutes to turn in your paper.
![Page 14: 3/21/2003CVEN349-Maxwell1 Equipment Costs Part 6.3 Follows Halpin Chapter 9 November 6, 2002.](https://reader036.fdocuments.us/reader036/viewer/2022082816/56649d0b5503460f949deba9/html5/thumbnails/14.jpg)
3/21/2003 CVEN349-Maxwell 14
Depreciation Costs These are intangible costs – that is, non out-of-
pocket. Don’t confuse with “wear-out.” Methods are dictated by the IRS but you have
some flexibility in your choice – It’s up to you to pick the best one for your circumstances.
What might those be? Class Discussion. Straight Line – Conservative Declining Balance, etc – Accelerated ACRS/MACRS – Generally the case now. Actually DDB
with conversion to St-Line. Production – Most unusual: Actually has something to
do with “wear out”
![Page 15: 3/21/2003CVEN349-Maxwell1 Equipment Costs Part 6.3 Follows Halpin Chapter 9 November 6, 2002.](https://reader036.fdocuments.us/reader036/viewer/2022082816/56649d0b5503460f949deba9/html5/thumbnails/15.jpg)
3/21/2003 CVEN349-Maxwell 15
Production Rate Method Based upon yearly fraction of estimated life
time production = 6,000 hrs Initial Cost = $12,000, Salvage Value = 0
Year Hours Book Value Depreciation
0 -6,000 $12,000 $0
1 3000 $6,000 $6,000
2 1000 $4,000 $2,0003 2000 $0 $4,000
![Page 16: 3/21/2003CVEN349-Maxwell1 Equipment Costs Part 6.3 Follows Halpin Chapter 9 November 6, 2002.](https://reader036.fdocuments.us/reader036/viewer/2022082816/56649d0b5503460f949deba9/html5/thumbnails/16.jpg)
3/21/2003 CVEN349-Maxwell 16
Straight Line Initial Cost = $12,000, Salvage Value =
$3,000, Years = 3.
Year Book ValueDepreciation
0 $12,000 $0
1 $9,000 $3,000
2 $6,000 $3,000
3 $3,000 $3,000
![Page 17: 3/21/2003CVEN349-Maxwell1 Equipment Costs Part 6.3 Follows Halpin Chapter 9 November 6, 2002.](https://reader036.fdocuments.us/reader036/viewer/2022082816/56649d0b5503460f949deba9/html5/thumbnails/17.jpg)
3/21/2003 CVEN349-Maxwell 17
PAT #6.3.3 Take out a sheet of paper, write your
name … … What is the annual St-Line
depreciation amount for a tower crane costing $1-million, with a service life of 8-years, and an estimated salvage value of $200k? Take 2-minutes.
Pass your paper to the aisle and to the front.
![Page 18: 3/21/2003CVEN349-Maxwell1 Equipment Costs Part 6.3 Follows Halpin Chapter 9 November 6, 2002.](https://reader036.fdocuments.us/reader036/viewer/2022082816/56649d0b5503460f949deba9/html5/thumbnails/18.jpg)
3/21/2003 CVEN349-Maxwell 18
Summary Equipment Costs are an important
part of project cash flow. Equipment Costs consists of : Fixed
Ownership Cost and Variable Operating Costs
Depreciation is a major component of fixed costs and has a significant affect on project cash flow.
![Page 19: 3/21/2003CVEN349-Maxwell1 Equipment Costs Part 6.3 Follows Halpin Chapter 9 November 6, 2002.](https://reader036.fdocuments.us/reader036/viewer/2022082816/56649d0b5503460f949deba9/html5/thumbnails/19.jpg)
3/21/2003 CVEN349-Maxwell 19
Class Assessment Take a minute to write down the
muddiest topic and turn it in.