4. An asset was acquired by Hugo and Sons with the following values: First cost= $400,000, depreciable life-3 years, and an estimated salvage value of $80,000. Initial investment is borrowed at 10% per year with repayment of an equal uniform amounts at the end of each year in 2 years. Expected gross income and expenses are $200,000 and $40,000 at year 1, respectively and both increase by $10,000 per year subsequently. The asset is actually salvaged after 3 years for $500,000. 1 a) What will be the size of each payment for the $400,000 debt? How much of each payment is interest and how much of each payment is principal (i.e., towards the $400,000 debt)? Payment/yr Interest/yr Principal Payment/yr Remaining principal balance 1012 t
4. An asset was acquired by Hugo and Sons with the following values: First cost= $400,000, depreciable life-3 years, and an estimated salvage value of $80,000. Initial investment is borrowed at 10% per year with repayment of an equal uniform amounts at the end of each year in 2 years. Expected gross income and expenses are $200,000 and $40,000 at year 1, respectively and both increase by $10,000 per year subsequently. The asset is actually salvaged after 3 years for $500,000. 1 a) What will be the size of each payment for the $400,000 debt? How much of each payment is interest and how much of each payment is principal (i.e., towards the $400,000 debt)? Payment/yr Interest/yr Principal Payment/yr Remaining principal balance 1012 t
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:4. An asset was acquired by Hugo and Sons with the following values: First cost=
$400,000, depreciable life-3 years, and an estimated salvage value of $80,000. Initial
investment is borrowed at 10% per year with repayment of an equal uniform amounts at
the end of each year in 2 years. Expected gross income and expenses are $200,000 and
$40,000 at year 1, respectively and both increase by $10,000 per year subsequently. The
asset is actually salvaged after 3 years for $500,000.
a) What will be the size of each payment for the $400,000 debt? How much of each
payment is interest and how much of each payment is principal (i.e., towards the
$400,000 debt)?
1
t
Payment/yr
Interest/yr Principal Payment/yr Remaining principal balance
0
1
2
b) What will be the depreciation amount and book value for this investment for years 1
through 3 using the MACRS Depreciation method?
T
BV
D
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