You have just bought a used track-typetractor to add to your production fleet. The initialcapitalized value of the tractor is $80,000. Theestimated service life remaining on the tractor is 9000 hours, andthe anticipated operating conditions across the remainder of itslife are normal. The salvage value of the tractor is$8,000.00.
You have decided to use a composite methodof depreciation. During the first two years, you use thedeclining balance method of depreciation. Since the tractoris used, the maximum rate of depreciation that can be used is 1/2times the straight-line rate. After first three years ofdepreciation , the straight line method will be used. Thetractor was purchased on 1 July 1972.
a)What amount of depreciation will you claim for each calenderyear during the period 1972-1975?
b)What percent of the total depreciable amount is taken in thefirst year?
c)The tax, interest, and insurance components of ownershipcost based on average annual value are:
Tax: 3%
Insurance: 2 %
Interest: 8%