Prime Petroleum Inc. is considering an acquisition of a new production facility in order to expand production of it its main product, a gasoline additive Gas Gain. The cost of construction (first cost) is $9,000,000. The annual operating cost is projected to be $700,000. The facility will be liquidated in 24 years, resulting in a salvage value inflow of $2,000,000. Assuming MARR of 4%, compute the annual worth of the project's cash flows, and type in your answer expressed as a cost (do not include negative sign with your answer
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.
Prime Petroleum Inc. is considering an acquisition of a new production facility in order to expand production of
it its main product, a gasoline additive Gas Gain. The cost of construction (first cost) is $9,000,000. The annual
operating cost is projected to be $700,000. The facility will be liquidated in 24 years, resulting in a salvage value
inflow of $2,000,000. Assuming MARR of 4%, compute the annual worth of the project's cash flows, and type in
your answer expressed as a cost (do not include negative sign with your answer
Trending now
This is a popular solution!
Step by step
Solved in 2 steps
