Consider a machine purchased one year ago for $18,000. The machine is being depreciated $3,000 per year throughout a six-year period. Its current market value is $6,000, and the expected market value of the machine one year from now is $4,000.    If the interest rate is 10%, the expected cost of holding the machine during the next year is  $___.

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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Consider a machine purchased one year ago for $18,000. The machine is being depreciated $3,000 per year throughout a six-year period. Its current market value is $6,000, and the expected market value of the machine one year from now is $4,000.
 
 If the interest rate is 10%, the expected cost of holding the machine during the next year is  $___.
Expert Solution
Step 1

Given:-

machine purchased one year ago = $18,000.

machine is being depreciated = $3,000 per year .

This machine can be sold now at $6,000

Alternatively it can be used for one more year and then it can be sold at  $4,000.

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