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Depreciation, alternate investment and profitability analysis

Indian Institute of Technology Roorkee via NPTEL

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Overview

In the  analysis of costs and profits for business operation the cost of  physical assets decrease in value with age due to physical deterioration, technological advances, changes in  economic environment, or other similar factors which ultimately will cause retirement of the property. The reduction in value of the physical assets due to any of the above causes is a measure of the depreciation. In the present MOOC different depreciation methods such as: St. line method, Declining balance method, Double-declining balance method, Sum-of-the-digits method, : Sinking fund method & Repair provision method, Accelerated cost recovery method –I&II are discussed. 

The common problem confronted in engineering economics are  those where alternative comparison  between two or more mutually exclusive alternative investments compete  involving different series of Capital disbursement. The present module demonstrates how to apply the profitability measures to select the best alternative out of a set of mutually exclusive alternatives properly. The module contains different methods such as: Annual Cost method, Present Worth  Method, Perpetuity  Method, Rate of Return Method, Incremental Rate of return Method and Minimum Return as a cost Method.

Resources required to carry out a project are often less than that available for it. Hence, all investments must be carried out carefully and should be evaluated towards its economic feasibility based on some profitability standards. A number of methods such as : Payback period, Return on investment, Net Return, Discounted cash flow-I & II are employed for computation of profitability in the economic analyses and are presented in this MOOC.

INTENDED AUDIENCE 

It is a core course for UG.

PRE-REQUISITES


Knowledge of time value of money concept is required.Knowledge of general mathematics and practice on MS Excel software are desirable.

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