At the beginning of the year, United Delivery had trucks valued at $1.3 million. During the year, United Delivery purchased new trucks valued at $500,000
If the value of the trucks at the end of the year was $1.5 million, what is the amount of its net investment and its depreciation during the year?
Net investment is the change in the capital stock from one period to the next. Hence for United Delivery, net investment equals $1.5 million - $1.3 million = $200,000. Net investment also equals gross investment minus depreciation. Thus depreciation equals gross investment minus net investment. Gross investment, the total amount spent on new capital equipment, was $500,000. Net investment was calculated to be $200,000. Therefore depreciation equals $500,000 - $200,000 = $300,000.
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