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Your company purchases two machines, which cost $3,000 and $3,000, respectively. They have linear straight-line depreciation...

Your company purchases two machines, which cost $3,000 and $3,000, respectively. They have linear straight-line depreciation schedules of 8 and 4 years, respectively. What is the present value of the depreciation, given a cost of capital of 8.6%?

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Expert Solution

Machine 1 Machine 2
i Cost 3000 3000
ii Useful life 8 4
iii=i/ii Annual depreciation 375 750
computation of present vlaue of depreciation
i ii iii iv=i*iii v=ii*iii
Year Machine 1 Machine 2 PVIF @ 8.6% present value machine 1 present value machine 2
1 375 750           0.9208            345.30                  690.61
2 375 750           0.8479            317.96                  635.92
3 375 750           0.7807            292.78                  585.56
4 375 750           0.7189            269.60                  539.19
5 375           0.6620            248.25                         -  
6 375           0.6096            228.59                         -  
7 375           0.5613            210.49                         -  
8 375           0.5168            193.82                         -  
        2,106.77               2,451.28
Present vlaue of machine 1= 2,106.77
Present vlaue of machine 2= 2,451.28

jeff jeffy answered 2 years ago
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