Question

Michael is an Internet service provider. On December 31, 2014, he bought an existing business with servers and a building worth $400,000. During 2015, his business grew and he bought new servers for $500,000. The market value of some of his older servers fell by $100,000.#1. What was Michael’s gross investment, depreciation, and net investment during 2015?#2. What is the value of Michael’s capital at the end of 2015?

Answer 1

Explanation:

Data provided in the question

Building worth = $400,000

The new servers purchase cost = $500,000

And, the older serves fell by $100,000

So by considering the above information

1. The gross investment is

= The new servers purchase cost

= $500,000

The depreciation is

= Older serves falling value

= $100,000

And, the net investment is

= Gross investment - depreciation

= $500,000 - $100,000

= $400,000

2. Now the value of Michael capital at the end is

= $400,000 - $100,000 + $500,000

= $800,000