CFOS Unit3

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Exercise 3.4 - Simple Depreciation or Annualization

A college of open learning in South Asia is planning a new course in physical science for adults and out-of-school youth at higher secondary level. In order to successfully complete the course, learners must carry out a series of experiments either in a laboratory or virtually using interactive computer software.

Before making a funding application for this project, it is necessary to determine which of these delivery methods would be cheaper on an annual basis. Another team is estimating the costs of providing laboratory equipment. Your job is to calculate the capital costs of procuring computer equipment and the annual depreciated amount that should be charged to the project, using the following information:

Number of personal computers required 200
Purchase price (including installation) 12,000 Rupees
Expected working life of PCs 6 years
Estimated rate of interest for the period 7.2%
Annualization Factor 0.211

Prepare a spreadsheet showing the amount of depreciation that should be charged to the project each year for the working life of the computers using both the Simple Depreciation and Annualization methods.

  • Which of these two methods would be most appropriate for estimating the capital costs of this project?

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