In January 2015, Tim's Gyms, Inc. owned machines valued at $1 million. During the year, the market value of the equipment fell by 30 percent. During 2015, Tim spent $200,000 on new machines. During 2015, Tim's net investment totaled
A) $1 million.
B) -$300,000.
C) $200,000.
D) -$100,000.

Question

Quizplus · Accepted Answer

At the beginning of 2015, Tim's Gyms owned equipment worth $1 million. By the end of the year, the market value of the equipment fell by 30%, which means the current value of the equipment is $1 million - ($1 million x 0.30) = $700,000.
During the year, Tim purchased new equipment worth $200,000.
Net investment = Purchases - Sale Proceeds 
Net investment = $200,000 - ($1 million - $700,000) 
Net investment = $200,000 - $300,000 
Net investment = -$100,000 
Therefore, Tim's net investment during 2015 was -$100,000.