LEWIS DRISCOLL AND DELTA CARGO

Lewis Driscoll and Delta Cargo



Table of Contents

Executive Summary3

Introduction4

Cost of Capital6

Capitalization Process6

Method7

Decisive Calculation9

Exhibit 112

Exhibit 212

Exhibit 313

Profit Impact13

References15

Executive Summary

Lewis Driscoll faces a number of demanding property, plant, and gear issues. If he buys a new crane, what ancillary charges should be capitalized? What depreciation method should he choose? How should he account for disposal choices for the old forklifts? Not only will his conclusions affect present and future profitability, but they may also influence other ones' bonuses founded on company presentation.

Lewis Driscoll and Delta Cargo

Introduction

Driscoll Lewis was enthusiastic about the proposal that had just crossed his desk. As logistics Delta Cargo Manager, located near the mouth of the Mississippi River, Driscoll and his team were responsible for loading and unloading barges with a wide variety of goods shipped to standard shipping containers. Delta Cargo was an operating division of Delta Transport, a company that provided a lot of transport services in the region of the Gulf Coast. With 10 forklifts for loading and unloading of barges, employees of Delta Cargo operate throughout the day. Sales representing the company JM Crane have recently shown a new crane Delta allowed to replace your forklift, improving efficiency and speed. Although it sounded like a great idea, Driscoll began to wonder if corporate governance is adopted expenses. The loading crane that would allow more efficient processing. As the first company to use technology, Delta has an advantage over many competitors in the freight business of the Mississippi River, which handles 175 million tons per year. Crane Investment undoubtedly affects the profitability of Delta as the forklift almost fully depreciated and the new crane would involve a considerable capital investment. Driscoll reminded the business management class was sponsored by Delta after the last promotion. How much depreciation Delta incurred by this new investment? But he did very matter such as depreciation benefits affected, but not a real cash outflow? Your selection a particular line-line depreciation, double declining balance, sum of years digits, or tax-based accelerated affect the bottom line of the delta and the total cost? Driscoll also knew that the maintenance of the forklifts would be unnecessary, since cranes capacity is much greater than Delta needs. If the crane is actually bought, so removing your options? And how they affect profitability? Although the forklift was depreciated substantially, Driscoll hopes that any disposal would result in a loss of Delta. New technologies in the market represents the forklift obsolete, so that despite the investment of the crane It certainly makes sense for the company under any method of valuation, would be costly and management of both companies might hesitate to assume the cost and to cancel the previous truck investment.

Cost of Capital

The initial valuation of property, plant, and equipment and intangible assets usually is quite simple. We know from prior study that assets are valued on the basis of their original costs. Driscoll purchased inventory for $42,000 and incurred $1,000 in freight costs to have the inventory shipped to its location, ...