Big Trucking Company has purchased a $100,000 dump truck that has a useful life of 8 years. After the first year of use, the market value of the dump truck falls to $70,000. If the highest one- year return available is 10 percent, what is the one- year return from selling the dump truck?

Question

Quizplus · Accepted Answer

The one-year return from selling the truck is the difference between the market value before and after the first year of use, which is $70,000 - $100,000 = -$30,000 (a loss). Since the problem states that the highest one-year return available is 10 percent, the return from selling the truck is limited to a maximum loss of 10% x $100,000 = $10,000. Therefore, the actual one-year return is -$10,000, and the closest answer choice is C.

Big Trucking Company Has Purchased a $100,000 Dump Truck That