In the AED(t) calculation, could you explain where the 12,500 value came from? T

Question

In the AED(t) calculation, could you explain where the 12,500 value came from? Thank you!

7.10 Determine the after-tax annual cost of a $50,000 machine which has operating and maintenance costs of $0.25 per unit. The machine will be sold for $5,000 at the end of five years. Production volumes are 100 units per day, 250 days per year. The declining balance depreciation rate is 25%, the after-tax MARR is 20%, and the tax rate is 50%. After-tax annual cost 50,000(A/P,20%.5)+0.25(100)250-NSV(A/F,20%,5)- AED(t) where NSV = 5.000-15.000-50,000(1-d)70.5 AED(t) annual equivalent worth of depreciation tax credits = 11 2.500(P/F,20%. 1) + 9,375(P/F,20%,2) + 7,031.25 (P/F,20%,3) + 5,273.44(P/F,20%,4) + 3,955.08(P/F.20%,5)(A/P,20%,5)0.5

Explanation / Answer

To calculate double declining depreciation method,

we use the beginning of year book value and multiply by depreciation rate i.e, 25%

Hence, year 1 beginning book value=50000

depreciation=50000*25%=12500

year 2 beginning book value=50000-12500=37500

depreciation=37500*25%=9375

year 2 beginning book value=37500-9375=28125

depreciation=28125*25%=7031.25

and so on

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