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Nw co is considering investing $46000 in a new delivery that will last for 4 years after which time will be sold for 7000 $. Depreciation on straightline.
Year 1 $16500
2. 23500
3. 13500
4. (1500)
Average profit is after depreciation but in this question they don’t deduct the depreciation to find the average investment. Why is that???The average investment is the average of the initial cost (46,000) and the final value (7,000).
That is how we always calculate it, as I explain in my free lectures.(The difference between the 46,000 and the 7,000 is the total depreciation, but that is of no relevance to calculating the average amount invested over the period.)
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