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Calculate Michael’s gross investment,
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Explanation of Solution
The total amount of money spent on the new capital is gross investment. During the period of 2015, Michael has purchased $500,000 of new servers. Thus, the gross investment in 2018 is $500,000. At the same time the market value of older servers falls by $100,000. That means the depreciation of the older servers is $100,000. Since, the gross investment is $500,000 and the depreciation is $100,000, the net investment can be calculated as follows.
Thus, Michael’s net investment is equal to $400,000.
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Macroeconomics, Student Value Edition Plus MyLab Economics with Pearson eText -- Access Card Package (12th Edition)
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