9. A contractor purchases a piece of equipment for $200,000. The life of this eq

Question

9. A contractor purchases a piece of equipment for $200,000. The life of this equipment is 7 years and the salvage value is $22,000. Using the sum of years digits method, the depreciation values in the first and second year, respectively, are closest to
a. $25,500 and $35,500
b. $22,000 and $22.000
c. $38,140 and $38,140
d. $44,500 and $38,140
e. $44,500 and $44,500
10. A transit company plans to purchase a fleet of buses for a total cost of $1,200,000. The annual cost runs at $200,000. At an annual interest rate of 3% and a life of 5 years for the buses, what should the annual benefit be so that the company would breakeven? Assume salvage value is zero and use the equivalent uniform annual costs and benefits.
a. $462,200
b. $362,300
c. $262,400
d. $162,500
e. $102,600
11. A initial cost for the purchase of a truck used in a construction company is $25,000. The life of the equipment is 5 years; and it is expected that the truck can be sold for $4,000 after the 5-yaer life. What would the depreciation in the 3rd year be, using the sum of years digit method?
(a) $2,200
(b) $3,200
(c) $4,200
(d)$1,200
(e) $200
12. Which statement best describes the elasticity of demand?
a. Change in demand as a result of 1% change in price.
b. Change in price when demand is increased by 10%.
c. Price at equilibrium.
d. Change in demand due to unit change in supply.
e. Change in supply due to 1% change in cost.
13. A cement manufacturing company is studying the sensitivity of cement price vs. demand. The study shows that if the price is increased by 10%, the sales will drop by 17%. The elasticity of the demand is most nearly
a. - 1.95
b. - 1.75
c. - 1.55
d. - 1.35
e. - 1.15

Explanation / Answer

9. Sum of years = 7+6+5+4+3+2+1 = 28

In sum of years digit method, depreciation = Depreciable Base * remaining useful life/ sum of years

Depreciation for year 1 = 7/28 * (200000 - 22000) = $44500

Depreciation for year 2 = 6/28 * (200000 - 22000) = $38143 or $38140 (approx.)

Option d is correct

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