Gisele is performing a make/buy study involving the retention or disposal of a 4-year-old machine that was to be in production for 8 years. It cost $500,000 originally. Without a market value estimate, she decided to use the current book value plus 20% for the market value. If DDB depreciation is applied, the market value estimate is closest to: (choose one)
(a) $158,200
(b) $253,125
(c) $217,900
(d) $189,840
DDB: d = 2/n = 2/8 = 0.25
Market value = 1.20BV4 = 1.20B(1-d)?
= 1.2(500,000)(0.75)4
= $189,844
Answer is (d) $189,840
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