Answer:
$22000 and $50000.
Explanation:
Given: Purchased value of equipment- $72000.
Residual value- $6000
Estimated useful life of equipment- $ 5 years.
Now, finding value of depreciation for 2011 using the sum of the years digits method.
Depreciation cost= 
⇒ Depreciation cost= 
∴ Depreciation cost= $66000.
Depreciation fraction for 1st year= 
Depreciation expense for 1st year= 
∴ Depreciation for 2011 is $22000.
Next, lets find out the book value at the end of first year.
Book value= 
Book value= 
∴ Book value at December 2011 is $50000.
Answer:
1. Payback period = 2.8 years
2. Break-even time = 3.8 years
3. NPV = $12,577
Explanation:
NOTE: See the attached excel file for the calculation tables.
1. Determine the payback period for this investment.
Payback period = 2 years and [(49,600 / 70,800) * 12] months = 2 years and 8 months approximately = 2.8 years.
2. Determine the break-even time for this investment.
Break-even time = 3 years and [(23,622 / 36,199) * 12] months = 3 years and 8 months approximately = 3.8 years
3. Determine the net present value for this investment.
Net present value (NPV) of this investment is $12,577
Starting a new business requires through and careful planning, which takes all aspects of the business into consideration. Funds for starting the business must also be available and the entrepreneur must be very disciplined and ready to put in a lot of work in order for the business to succeed.
Any step that will result in the eventual failure of the business is not a good step to take. At the early days of the new business especially, care must be taken not to take any step that will put the finances of the business in jeopardy.
