6. A compamy is considering buying a computer: ComputerA $3,900 $1,800 Initial c

Question

6. A compamy is considering buying a computer: ComputerA $3,900 $1,800 Initial co Salvage value Useful lif Annual maintenance $ 390 0 years 6% Interest ate MUST ANSWER ALL OF THE PARTS BELOW (show ali work): PART : What is the annual straight line depreciation for computer "A"? (circle one) a, $210 $225 c. $262 d. $420 PART 2: What is the total straight-line depreciation value of computer "A" after the fifth ycar? (circie one) $1000 c. $I125 $1050 d. $1250 PART 3: What is the present worth of the costs for computer "A"? (circle one) a. $5330 b.$5765 d. $6770 C. $6670 PART 4 What is the equivalent uniform annual cost (EUAC) of computer "A" for its ten year useful life? (circle one) $740 $820 c. $783 d. $851

Explanation / Answer

(Part I) Option (a)

Annual depreciation ($) = (Cost - salvage value) / Useful life = (3,900 - 1,800) / 10 = 2,100 / 10 = 210

(Part 2) Option (b)

Total depreciation in 5th year ($) = Annual depreciation x 5 = 210 x 5 = 1,050

(Part 3) Option (b)

PW of costs ($) = 3,900 + 390 x P/A(6%, 10) - 1,800 x P/F(6%, 10)

= 3,900 + 390 x 7.3601 - 1,800 x 0.5584 = 3,900 + 2,870 - 1,005 = 5,765

(Part 4) Option (c)

EUAC ($) = PW / P/A(6%, 10) = 5,765 / 7.3601 = 783

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