A large industrial washer system costs $69,000 and is expected to depreciate by 15% at the end of next year. The real interest rate is 7%. What is the user cost of the washer system for one year?

Question

Quizplus · Accepted Answer

The user cost of the washer system for one year includes both the depreciation and the opportunity cost of the capital. The depreciation is 15% of $69,000, which is $10,350. The opportunity cost is the real interest rate (7%) applied to the initial cost of the washer, which is 7% of $69,000, equal to $4,830. Adding these two costs together gives $10,350 + $4,830 = $15,180.

A Large Industrial Washer System Costs $69,000 and Is Expected