Finance question

Question

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Part A: Estimate the cost of the equipment.

Cost = $ 

Part B: Estimate the salvage value of the equipment.

Salvage Value = $ 

Part C: Estimate the book value of the equipment in Year 4.

Book value in Year 4 = $ 

Part D: The equation for the book value of the farm equipment is

      Value = 130,000 - 12,000(Years)

Use the equation to determine the book value when the equipment is six years old.

Book value at the end of Year 6 = $ 

Part E: Is your answer for Part D an example of interpolation or extrapolation?

1. Extrapolation
2. Interpolation

Part F: Which of the following is the correct interpretation of the "12,000" in this equation?

1. $12,000 is the annual depreciation of the equipment.
2. $12,000 is the total depreciation of the equipment.
3. $12,000 is the salvage value of the equipment.
4. $12,000 is the basis of the equipment.

Part G: The book value of the equipment will be $70,000 at the end of Year

Answer 1

Part A: Cost = $130,000

(The graph’s y-intercept at Year 0 shows the initial purchase cost.)

Part B: Salvage Value = $10,000

(The line ends at $10,000 after 10 years—the residual value at the end of its useful life.)

Part C: Book value in Year 4 = $82,000

(Read directly from the straight-line graph or calculate: 130,000 – 12,000 × 4.)

Part D: Book value at the end of Year 6 = $58,000

(Plug into the given equation: 130,000 – 12,000 × 6 = 58,000.)

Part E: 2. Interpolation

(Year 6 falls inside the graphed range of 0–10 years, so we are interpolating within known data.)

Part F: 1. $12,000 is the annual depreciation of the equipment.

(The equation shows straight-line depreciation: each year the book value drops by exactly $12,000.)

Part G: The book value of the equipment will be $70,000 at the end of Year 5.

(Solve 130,000 – 12,000Y = 70,000 → Y = 5.)