On January 1, 2015, United Delivery had trucks valued at $1.3 million. During 2015, United Delivery purchased new trucks valued at $500,000. If the value of the trucks on December 31, 2015 was $1
5 million, what is the amount of its net investment and its depreciation during 2015?
Net investment is the change in the capital stock from one period to the next. For United Delivery, net investment equals $1.5 million - $1.3 million = $200,000. Net investment also equals gross investment minus depreciation, so 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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