HVAC · Supporting-Topics · Problem 14PDFSolution in PDF ↓
HVAC · Supporting-Topics · Problem 14
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Student questions asked in live office hours about this problem
OH 39: HVAC: Supporting Topics-14
Q: For a present-value problem with initial cost, revenue, maintenance, depreciation, and salvage value, my approach diverged from the solution — can you walk through the cash flow diagram?
A: Drawing the cash flow diagram first is exactly the right move, and I'm glad you did. For present value, each cash flow gets multiplied by its corresponding discount factor (P/F or P/A from the reference handbook), with inflows positive and outflows negative. If your setup looked right but your answer diverged, the most common culprits are treating end-of-period vs. beginning-of-period timing incorrectly or missing the salvage value recovery.
OH 65: HVAC: Supporting Knowledge #14
Q: The reference handbook says straight-line depreciation is (cost – salvage value) / n — would the answer not use salvage value directly?
A: Yes, it should include salvage value — I have a correction coming out for this one because I didn't account for it and I should have. Straight-line depreciation is (initial cost – salvage value) / n, full stop. If salvage value is given in the problem, it goes into the depreciation calculation.
OH 96: HVAC: Supporting Topics #14
Q: Don't you subtract the initial cost from the salvage value (not salvage from cost) before dividing by the number of years?
A: It's the other way around — depreciation is (initial cost – salvage value) / n. If you reversed it, you'd get a negative depreciation, which doesn't make sense since the asset is losing value over time. But yes, you're right that salvage value must be included in the denominator calculation.
OH 98: HVAC: Supporting Topics #14
Q: The handbook includes salvage value in straight-line depreciation — I ran through the calculations and got 13,300. Should I include salvage value in the original depreciation calculation?
A: Yes, salvage value should always be included in the depreciation calculation when it's given — this is the standard formula. This question has come up a number of times, so make sure you have it locked in: depreciation = (initial cost – salvage value) / n. If salvage value is omitted in a problem, then your depreciation basis is just the initial cost.