1. A machine that costs $20,000 has a 10-year life and a $2000 salvage depreciat
ID: 1165299 • Letter: 1
Question
1. A machine that costs $20,000 has a 10-year life and a $2000 salvage depreciation is used, what is tdhe book value of the mach value. If straight-line ine at the end of the fourth year? (10 points) (a) $16,400 (b) $16,000 (c) $14,600 (d) $12,800 (c) $11,000 200 2. If the IRR of Alternative A is 18%, the IRR of Alternative B is 15%, and MARR is 16% 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 preferredExplanation / Answer
(1) Option (d)
Annual depreciation = (Cost - Salvage value) / Useful life = $(20,000 - 2,000) / 10 = $18,000 / 10
= $1,800
Accumulated depreciation in 4 years = $1,800 x 4 = $7,200
Book value at end of year 4 = Cost - Accumulated depreciation in 4 years = $20,000 - $7,200
= $12,800
(2) Option (a)
A project is accepted if its IRR is higher than MARR. Since project A has higher IRR compared to MARR (18% > 16%), project A is acceptable over project B.
NOTE: As per Chegg Answering Policy, first two questions are answered.
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