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Q2. The Department of Engineering is contemplating the purchase of a top-of-the- line PCB drilling machine to be used in its

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Answer #1

Depreciation amount every year = 5,000 / 10 => $500 per year.

Annual fees paid by student = $500 per year.

Hence at year 8 end breakeven will happen if the department is able to recover its entire cost (depreciation amount). As in this case

Amount of Cost (Depreciation) = Fees paid by student.

Therefore at year 8 end, it should be able to sell its machine at minimum of machine's book value in order to remain break even.

Hence Value of "S" = Book Value at EOY 8 = 5000 - (500*8)

=> 1,000 is the value of "S".

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