Calculate the user cost of capital of a machine that costs $5,000 and depreciates at a 25% rate,when the interest rate is 5%.
A)$150
B)$500
C)$1500
D)$5000

Question

Quizplus · Accepted Answer

The formula to calculate the user cost of capital is:

User cost of capital = (depreciation rate / 2) x (cost of the machine + salvage value) x (interest rate)

In this case, the depreciation rate is 25%, the cost of the machine is $5,000 and there is no information about the salvage value. Let's assume that the salvage value is also $5,000, so the formula becomes:

User cost of capital = (0.25 / 2) x ($5,000 + $5,000) x 0.05 = $1500

Calculate the User Cost of Capital of a Machine That