Question

Dog up! franks is looking at a new sausage system with an installed cost of $500,000. this cost will be depreciated straight-line to zero over the project’s five-year life, at the end of which the sausage system can be scrapped for $74,000.

Answer 1

In this item, it is assumed that we are to calculate for the depreciation rate of the sausage system. This can be calculated through the equation,
D = (P - S) / n

where D is the depreciation rate,
P is the present value of the sausage system, $500,000
S is the salvage value, $74,000
and n is the number of years, 5 years

Substituting the known values from the given in this item,
D = ($500,000 - $74,000) / 5
D = $85,200

The depreciation rate of the new sausage system that Frank will buy is $85,200/year