An investment of $ 170,000 was made 6 years ago for a construction machine. Annual revenue from the use of this machine is $40 000. A maintenance-repair expense of $3,000 was made for the first year, and $500 for each subsequent year, in addition to the previous year. The company plans to sell the construction equipment at the end of the year (8th year) after 2 years with a scrap value of 35 000$. Calculate the cash flow for the next 2 years. A) 74 500 B) 81 500 C) 75 000 D) 68 500 E) 70 000
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.
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An investment of $ 170,000 was made 6 years ago for a construction machine. Annual revenue from the use of this machine is $40 000. A maintenance-repair expense of $3,000 was made for the first year, and $500 for each subsequent year, in addition to the previous year. The company plans to sell the construction equipment at the end of the year (8th year) after 2 years with a scrap value of 35 000$. Calculate the cash flow for the next 2 years.
A) 74 500
B) 81 500
C) 75 000
D) 68 500
E) 70 000
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