A special-purpose machine is to be purchased at a cost of $30,000. The follow- ing table shows the expected annual operating and maintenance cost and the salvage value for each year of service: Year of Service O&M COnt Market Value 1 $5,000 $25,800 2 $6,500 $16,000 3 $10,000 $10,000 4 $12,500 $5,000 5 $14,800 $0 If the interest rate is 12%, what is the economic service life for this machine?

A special-purpose machine is to be purchased at a cost of $30,000. The follow- ing table shows the expected annual operating and maintenance cost and the salvage value for each year of service: Year of Service O&M COnt Market Value 1 $5,000 $25,800 2 $6,500 $16,000 3 $10,000 $10,000 4 $12,500 $5,000 5 $14,800 $0 If the interest rate is 12%, what is the economic service life for this machine?

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Concept explainers

Production Budget

A budget can be defined as a financial plan designed by an undertaking for a definite period in the future that can contribute towards enhancing the financial success of the business undertaking. It is used to estimate the revenue and expenses. The budget generally takes into account both current and future income and expenses.

Question

Rework Problem 12.11, assuming the following additional information:
• For tax purposes, the entire cost of $30,000 can be depreciated according to
a five-year MACRS property class.
• The firm's marginal tax rate is 40%.

A special-purpose machine is to be purchased at a cost of $30,000. The follow-
ing table shows the expected annual operating and maintenance cost and the
salvage value for each year of service:
Year of Service
O&M COnt
Market Value
1
$5,000
$25,800
2
$6,500
$16,000
3
$10,000
$10,000
4
$12,500
$5,000
5
$14,800
$0
If the interest rate is 12%, what is the economic service life for this machine?

Definition Video Definition Accounting method wherein the cost of a tangible asset is spread over the asset's useful life. Depreciation usually denotes how much of the asset's value has been used up and is usually considered an operating expense. Depreciation occurs through normal wear and tear, obsolescence, accidents, etc. Video

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