An £80,000 machine to manufacture recycled paper was purchased by the XYZ company two years ago. The current Market Value of the machine is £50,000 and it can be kept in service for seven more years. MARR is 12% per year and the projected net annual receipts (revenue less expenses) and end-of-year market values for the machine are shown below. When is the best time for the company to abandon this machine? End of Year 1 2 3 4 5 6 7 £3,000 £5,000 Net annual receipts £20,000 £20,000 £18,000 £15,000 £12,000 £6,000 Market Value £40,000 £32,000 £25,000 £20,000 £15,000 £10,000
An £80,000 machine to manufacture recycled paper was purchased by the XYZ company two years ago. The current Market Value of the machine is £50,000 and it can be kept in service for seven more years. MARR is 12% per year and the projected net annual receipts (revenue less expenses) and end-of-year market values for the machine are shown below. When is the best time for the company to abandon this machine? End of Year 1 2 3 4 5 6 7 £3,000 £5,000 Net annual receipts £20,000 £20,000 £18,000 £15,000 £12,000 £6,000 Market Value £40,000 £32,000 £25,000 £20,000 £15,000 £10,000
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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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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Transcribed Image Text:An £80,000 machine to manufacture recycled paper was purchased by the XYZ company
two years ago. The current Market Value of the machine is £50,000 and it can be kept in
service for seven more years. MARR is 12% per year and the projected net annual receipts
(revenue less expenses) and end-of-year market values for the machine are shown below.
When is the best time for the company to abandon this machine?
End of Year
1
2
3
4
5
6.
7
£3,000
£5,000
Net annual receipts
£20,000 £20,000 £18,000 £15,000 £12,000
£6,000
Market Value
£40,000 £32,000 £25,000 £20,000 £15,000 £10,000
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