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22 July, 15:55

Jones Company is considering investing in a new piece of equipment that costs $600,000 and has a $100,000 residual value. The new equipment should provide a cost savings of $50,000 per year over its five-year life. In calculating ARR, what is the average amount invested in the asset (denominator) ?

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  1. 22 July, 19:06
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    average amount invested is $350000

    Explanation:

    Given data

    amount invested = $600000

    residual value = $100000

    cost saving = $50000

    to find out

    average amount invested

    solution

    we will calculate here average amount invested by given formula that is

    average amount invested = (amount invested + residual value) / 2 ... 1

    put all these value we get by equation 1

    average amount invested = $600000 + $100000) / 2

    average amount invested = $700000 / 2

    average amount invested is $350000
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