A machine that costs $20,000 has a 10-year life and a $2000 salvage value. If st

Question

A machine that costs $20,000 has a 10-year life and a $2000 salvage value. If straight-line depreciation is used, what is the book value of the machine at the end of the fourth year? 1. (10 points) (a) $16,400 (b) $16,000 (c) $14,600 (d) $12,800 e) $11,000 2. If the IRR of Alternative A is 18%, the IRR of Alternative B is 15%, and MARR is 169 which of the following is correct. (5 points) (a) alternative A is preferred over alternative B. (b) alternative B is preferred over alternative A. (c) neither alternative A nor alternative B is acceptable. (d) not enough information is given to determine which alternative is preferr ed.

Explanation / Answer

1) Cost of asset = 20000

Salavag value = 2000

Total depreciation cost = 20000-2000 = 18000

Annual depreciation amount = 18000/10 = 1800

Answer = 12800$

2) If IRR value is greater than MARR value than that project is choosen

IRR of A 18% > MARR value 16% where as IRR of B 15% < MARR value 16%

So project A is chosen

Answer: alternative A is preferred over alternative B

Year Book value (begining year) Depreciation Book value(end of the year) 1 20000 1800 18200 2 18200 1800 16400 3 16400 1800 14600 4 14600 1800 12800

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