Economics 13th Edition by James Gwartney, Richard Stroup, Russell Sobel, David Macpherson

Exercise 14

Consider a machine purchased one year ago for $12,000. The machine is being depreciated $4,000 per year over a three-year period. Its current market value is $5,000, and the expected market value of the machine one year from now is $3,000. If the interest rate is 10 percent, what is the expected cost of holding the machine during the next year?