Valuing the Tem-5Replacement Cost Less Depreciation

Valuing the Tem-5Replacement Cost Less Depreciation

IBM System 360 Mod 75Purchase price range from $10.6 million to $16.9 million in today’s dollars

Announced April 22, 1965 and withdrawn March 15, 1977.

The Depreciation of Electronic Computers Is Different from the Depreciation of Your CarThe Depreciation of Electronic Computers Is Different from the Depreciation of Your Car

What Causes Depreciation forElectronic Computers?

What Causes Depreciation forElectronic Computers?

Very Little Depreciation Due to Aging– those electronic parts can last a very long time.

Most of the Depreciation Comes from Obsolescence– Cheaper Computers That Can Perform the Same Function.– Better Computers That Can Do Things The Older Ones Cannot Do.

The TEM-5 is Like a ComputerThe TEM-5 is Like a Computer

Relatively Little Depreciation Due to Aging– The TEM-5 was only a few years old.

Most of the Depreciation Comes from Obsolescence– The 2A7 was cheaper and could perform similar functions.

– The TEM-5 had a dangerous design.

– The TEM-5 was making an obsolete product.

The Business Value of the Tem-5The Business Value of the Tem-5

1. Ongoing Production Value

2. Future Production Value

3. Interim Production Value

4. Resale Value, or Parts and Scrap Value

4/24/2000TEM-5 Out of Service

7/24/20002A7 Fully Operational

Production TimelineProduction Timeline

1/1/2002Demand Exceeds2A7 Capacity?

InterimProduction

Value

OngoingProduction

Value

FutureProduction

Value

The 2A7 and the 2A8 Added a Lot of CapacityThe 2A7 and the 2A8 Added a Lot of Capacity

There Was No Ongoing Production Value:The 2A7 Alone Had More Than Enough Capacity

to Handle Demand in the Fall of 2000

There Was No Ongoing Production Value:The 2A7 Alone Had More Than Enough Capacity

to Handle Demand in the Fall of 2000

An Example of Future Production ValueAn Example of Future Production Value

When would it make sense to park your old car in the garage for some future use rather than selling it?– Your daughter is 13 and you want her to have the car when

she turns 16.

PROPRO

CONCON

You won’t have to buy her a car in three years

It’s not good for the car to sit there idle all that time, It could cost a lot to get it running well again The car will depreciate in value just sitting there. If you sold the car now, you could invest the money in the

stock market, and, if things go well, you could use the gain to buy a really great car when your daughter is 16.

Important Consideration for SDI PlanningThe 2A8 Could be Used for Future Production

Important Consideration for SDI PlanningThe 2A8 Could be Used for Future Production

In TRW Rack and Pinion Program for which the 2A8 was planned– Phase in 2000/2001

– Phase out 2002/2003