Your best friend wants to start a horse boarding operation. She plans to build a

Question

Your best friend wants to start a horse boarding operation. She plans to build a barn. The purchase cost of the barn is $80,000. She plans to use the barn for the next 20 years, at which time it will be worth $20,000. The interest rate is 7% per year. The annual taxes and insurance costs amount to 3% of the purchase price of the barn Please calculate the total annual fixed costs for this barn: Depreciation (Purchase Price Salvage Value) Useful Life Depreciation = Interest (Purchase Price + Salvage Value) x Int. Rate - Interest- Taxes & Insurance- Total Annual Fixed Costs-

Explanation / Answer

Purchase price = $80,000
Salvage value = $20,000
Useful life = 20
Interest rate = 7%

Using the formulas along with above information, we calculate:

Depreciation = (80000-20000)/20
Depreciation = 3000

Interest = 0.07*(80,000 + 20,000)/2
Interest = 3500

Taxes & Insurance = 3%*80000
Taxes & Insurance = 2400

Total annual fixed cost = Depreciation + Interest + Taxes&insurance
=3000 + 3500 + 2400
= 8900

Related Questions

Navigate

• Browse (All)
• Browse Y
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.