At the start of the year,your firm's capital stock equaled $100 million,and at the end of the year it equaled $105 million.The average depreciation rate on your capital stock is 20%.Gross investment during the year equaled

Question

Quizplus · Accepted Answer

Gross investment is calculated by adding net investment to depreciation. The net investment is the increase in capital stock, which is $5 million ($105 million - $100 million). Depreciation is 20% of the initial capital stock, which is $20 million (20% of $100 million). Therefore, gross investment is $5 million (net investment) + $20 million (depreciation) = $25 million.

At the Start of the Year,your Firm's Capital Stock Equaled