EBK ECONOMICS
EBK ECONOMICS
13th Edition
ISBN: 8220106799642
Author: PARKIN
Publisher: PEARSON
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Chapter 24, Problem 1SPA
To determine

Identify the values of gross investment, depreciation, and net investment.

Expert Solution & Answer
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Explanation of Solution

The total amount of money spent on the new capital is gross investment. During the period of 2018, M has purchased $500,000 of new servers. Thus, the gross investment in 2018 is $500,000. At the same time, the market value of older servers falls by $100,000. This means that the depreciation of the older servers is $100,000. Since the gross investment is $500,000 and the depreciation is $100,000, the net investment is $400,000($500,000$100,000)

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