Question

if the $30,000 received from the salvage value of the old equipment will be used to help purchase the new equipment, how much money must the company set aside each quarter in order to have the total amount needed for the new equipment in year five?

Answer 1

The company must set aside $5,000 per quarter, assuming the cost of new equipment is $130,000, factoring in the $30,000 salvage value, over 20 quarters.

Step-by-step explanation:

To calculate the amount of money a company must set aside each quarter to purchase new equipment with the inclusion of the $30,000 salvage value from old equipment, we need to consider the total cost of the new equipment and the time frame.

If the company aims to have the full amount by year five, we need to know the total amount required (after subtracting the $30,000 salvage value) and divide it by the number of quarters in five years (20 quarters).

Let's assume, for the sake of example, that the new equipment costs $130,000. After taking into account the $30,000 from the salvage value, the company needs an additional $100,000 for the new equipment.

They would then divide $100,000 by 20 quarters, which results in setting aside $5,000 per quarter.

This simple calculation does not take into account potential interest rate or earnings that could be received from investing the set-aside funds, which could reduce the amount that needs to be saved each quarter.