Foundations of Economics (8th Edition)
Foundations of Economics (8th Edition)
8th Edition
ISBN: 9780134486819
Author: Robin Bade, Michael Parkin
Publisher: PEARSON
Question
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Chapter 26, Problem 1SPPA
To determine

To find:

The gross investment, depreciation and net investment of Mr. T.

Expert Solution & Answer
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Explanation of Solution

Given information:

Capital stock at January 1, 2016 is $300,000.

Additional purchase value is $180,000.

The market value of assets at end of 2016 is $400,000.

Calculation of gross investment:

  Grossinvestment=( CapitalstockinJanuary2016 +Purchasevalueduring2016)=($300,000+$180,000)=$480,000

Calculation of depreciation:

  Depreciation=( Grossinvestmentin2016 Marketvalueofassetsatendof2016)=($480,000$400,000)=$80,000

Calculation of net investment:

  Netinvestment=( Grossinvestment Depreciation)=($300,000$400,000)=$100,000

Economics Concept Introduction

Gross investment:

Gross investment refers to the total amount of spending by a firm on the purchase of new capital within the financial year, and this does not account for depreciation.

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