Comments on: On minimizing depreciation expenses http://earlyretirementextreme.com/2008/02/on-minimizing-depreciation-expenses.html Financial independence, frugality, self-sufficiency, ecology, capitalism, and voluntary simplicity Sat, 11 Oct 2008 02:10:15 +0000 http://wordpress.org/?v=2.6.2 By: Jacob http://earlyretirementextreme.com/2008/02/on-minimizing-depreciation-expenses.html#comment-640 Jacob Wed, 05 Mar 2008 15:41:56 +0000 http://earlyretirementextreme.com/2008/02/on-minimizing-depreciation-expenses.html#comment-640 @fubek & steve - So the real question is whether your business is in buying and selling furniture in which case the salvage costs (sales price would be more apt) should be discounted as part of the NPV analysis or whether your business is in eating on the furniture in which case the use of the furniture should be expensed through depreciation with no discounting. @fubek & steve - So the real question is whether your business is in buying and selling furniture in which case the salvage costs (sales price would be more apt) should be discounted as part of the NPV analysis or whether your business is in eating on the furniture in which case the use of the furniture should be expensed through depreciation with no discounting.

]]> By: Fubek http://earlyretirementextreme.com/2008/02/on-minimizing-depreciation-expenses.html#comment-639 Fubek Wed, 05 Mar 2008 15:26:42 +0000 http://earlyretirementextreme.com/2008/02/on-minimizing-depreciation-expenses.html#comment-639 Steve, heh, tough question. Hmm.. if you have no alternative, then there is also no opportunity that you miss. Thus, no opportunity cost ;-) That's my take! Steve,

heh, tough question. Hmm.. if you have no alternative, then there is also no opportunity that you miss. Thus, no opportunity cost ;-)

That’s my take!

]]> By: Steve Austin http://earlyretirementextreme.com/2008/02/on-minimizing-depreciation-expenses.html#comment-636 Steve Austin Wed, 05 Mar 2008 14:56:41 +0000 http://earlyretirementextreme.com/2008/02/on-minimizing-depreciation-expenses.html#comment-636 Fubek, I may have failed to clearly make my point: if keeping the $75 in a deposit account is not a viable alternative to having a dining room set to eat on, then has opportunity cost really been forgotten? I won't argue whether no-dining-room-set is a viable dining alternative. That's for the diners to argue. ;-\ Fubek, I may have failed to clearly make my point: if keeping the $75 in a deposit account is not a viable alternative to having a dining room set to eat on, then has opportunity cost really been forgotten? I won’t argue whether no-dining-room-set is a viable dining alternative. That’s for the diners to argue. ;-\

]]> By: Fubek http://earlyretirementextreme.com/2008/02/on-minimizing-depreciation-expenses.html#comment-635 Fubek Wed, 05 Mar 2008 13:09:01 +0000 http://earlyretirementextreme.com/2008/02/on-minimizing-depreciation-expenses.html#comment-635 Steve, if you can rent it for less than $5.89 a year (which is the average of loss plus opportunity cost), you should rent it, of course. Thus, opportunity cost always applies. Now for the question IF you can rent the furniture of the example for that amount of money: that is basically irrelevant for my point. If you cannot, you should buy, if you can, rent. My point is to just never forget to include opportunity cost. :-) Steve,

if you can rent it for less than $5.89 a year (which is the average of loss plus opportunity cost), you should rent it, of course.

Thus, opportunity cost always applies.

Now for the question IF you can rent the furniture of the example for that amount of money: that is basically irrelevant for my point. If you cannot, you should buy, if you can, rent.

My point is to just never forget to include opportunity cost. :-)

]]> By: Steve Austin http://earlyretirementextreme.com/2008/02/on-minimizing-depreciation-expenses.html#comment-621 Steve Austin Tue, 04 Mar 2008 17:01:09 +0000 http://earlyretirementextreme.com/2008/02/on-minimizing-depreciation-expenses.html#comment-621 re: good value for computers, I've had great luck with IBM/Lenovo refurbished Thinkpad R-series. Got an R40 for $400. Thinkpads are rugged, reliable units. re: good value for computers, I’ve had great luck with IBM/Lenovo refurbished Thinkpad R-series. Got an R40 for $400. Thinkpads are rugged, reliable units.

]]> By: Steve Austin http://earlyretirementextreme.com/2008/02/on-minimizing-depreciation-expenses.html#comment-620 Steve Austin Tue, 04 Mar 2008 16:57:31 +0000 http://earlyretirementextreme.com/2008/02/on-minimizing-depreciation-expenses.html#comment-620 Fubek, is opportunity cost relevant when the alternative (a $75 deposit account yielding 5% APR) cannot replace the original non-discretionary requirement? Maybe a dining room set is discretionary, but can one be rented for less than $9.73 for 2.5 years? Fubek, is opportunity cost relevant when the alternative (a $75 deposit account yielding 5% APR) cannot replace the original non-discretionary requirement? Maybe a dining room set is discretionary, but can one be rented for less than $9.73 for 2.5 years?

]]> By: Fubek http://earlyretirementextreme.com/2008/02/on-minimizing-depreciation-expenses.html#comment-617 Fubek Tue, 04 Mar 2008 16:06:07 +0000 http://earlyretirementextreme.com/2008/02/on-minimizing-depreciation-expenses.html#comment-617 You forgot to factor in the opportunity costs. $75 at 5% would have earned you $75*(1.05^2.5-1) = $9.73, so add that to the $5 loss and you have an average yearly cost of $14.73/2.5 = $5.89. As you can see, opportunity cost makes the bunch of the total cost, especially if you sell near the buying price. Never forget it! You forgot to factor in the opportunity costs.

$75 at 5% would have earned you $75*(1.05^2.5-1) = $9.73, so add that to the $5 loss and you have an average yearly cost of $14.73/2.5 = $5.89.

As you can see, opportunity cost makes the bunch of the total cost, especially if you sell near the buying price. Never forget it!

]]> By: Jacob http://earlyretirementextreme.com/2008/02/on-minimizing-depreciation-expenses.html#comment-381 Jacob Tue, 12 Feb 2008 01:33:07 +0000 http://earlyretirementextreme.com/2008/02/on-minimizing-depreciation-expenses.html#comment-381 @ dawn - When my powerbook dies, I'm probably going to get an Asus Eee. This is a $300 computer - not entirely free, but if it lasts 3-4 years, it's still less than 100 bucks a year. The trick to doing this is really in finding the balance between the three components, the price you pay, the price you get and the time it lasts. Often high quality used items provide the biggest bang for the buck. For instance, in terms of buying watches check out http://www.artoftime.com (I'm not affiliated) or similar stores. Then learn which watches make good movements and which are more fashionable and buy something conservative. Later the watch can be sold for almost the same that you paid for it. @ chris - around here people are literally giving entertainment centers and exercise equipemtn away. I'm figuring, if I just had the space to store them, I could gather them. Drive them to a less wasteful city/state and sell them. @ dawn - When my powerbook dies, I’m probably going to get an Asus Eee. This is a $300 computer - not entirely free, but if it lasts 3-4 years, it’s still less than 100 bucks a year. The trick to doing this is really in finding the balance between the three components, the price you pay, the price you get and the time it lasts. Often high quality used items provide the biggest bang for the buck. For instance, in terms of buying watches check out http://www.artoftime.com (I’m not affiliated) or similar stores. Then learn which watches make good movements and which are more fashionable and buy something conservative. Later the watch can be sold for almost the same that you paid for it.

@ chris - around here people are literally giving entertainment centers and exercise equipemtn away. I’m figuring, if I just had the space to store them, I could gather them. Drive them to a less wasteful city/state and sell them.

]]> By: Chris Hynes http://earlyretirementextreme.com/2008/02/on-minimizing-depreciation-expenses.html#comment-379 Chris Hynes Mon, 11 Feb 2008 20:55:11 +0000 http://earlyretirementextreme.com/2008/02/on-minimizing-depreciation-expenses.html#comment-379 This is very good advice, especially for furniture. If you can drive a hard bargain when you make the initial purchase, you could actually make money on the deal. For example, I bought a pool table with related apparatus used for $500, and was able to sell everything individually a couple years later for over $1000! This is very good advice, especially for furniture. If you can drive a hard bargain when you make the initial purchase, you could actually make money on the deal. For example, I bought a pool table with related apparatus used for $500, and was able to sell everything individually a couple years later for over $1000!

]]> By: Dawn http://earlyretirementextreme.com/2008/02/on-minimizing-depreciation-expenses.html#comment-378 Dawn Mon, 11 Feb 2008 20:01:13 +0000 http://earlyretirementextreme.com/2008/02/on-minimizing-depreciation-expenses.html#comment-378 How are you going to 'not buy' a computer? Would love more details on how you did this... very interesting. How are you going to ‘not buy’ a computer?
Would love more details on how you did this… very interesting.

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