Machine “A” has an initial cost of $ 50,000 with an estimated period of 12 years and a salvage value of $ 14,000. Annual O&M costs are $ 6,000 the first year, $ 6,300 the second year, and so on. Another Alternative is machine “B” which has an initial cost of $ 30,000 and a recovery value of $ 3,000 at the end of the 12-year service period, annual operating and maintenance expenses are $ 8,000 the first year, $ 8,500 the second. year and so on. Using an interest rate of 13% per year. Do a Present Value analysis, and determine the value of Machine B Possible results $88,760.84 $89,543.09 $88,543.09
Depreciation Methods
The word "depreciation" is defined as an accounting method wherein the cost of tangible assets is spread over its useful life and it usually denotes how much of the assets value has been used up. The depreciation is usually considered as an operating expense. The main reason behind depreciation includes wear and tear of the assets, obsolescence etc.
Depreciation Accounting
In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.
Machine “A” has an initial cost of $ 50,000 with an estimated period of 12 years and a salvage value of $ 14,000. Annual O&M costs are $ 6,000 the first year, $ 6,300 the second year, and so on. Another Alternative is machine “B” which has an initial cost of $ 30,000 and a recovery value of $ 3,000 at the end of the 12-year service period, annual operating and maintenance expenses are $ 8,000 the first year, $ 8,500 the second. year and so on. Using an interest rate of 13% per year. Do a Present Value analysis, and determine the value of Machine B
Possible results
$88,760.84
$89,543.09
$88,543.09
Step by step
Solved in 3 steps with 2 images
