Tawney company is considering investing in a new piece of equipment that costs $700,000 and has a $200,000 residual value. the new equipment should provide a cost savings of $60,000 per year over its five-year life. in calculating arr, what is the average amount invested in the asset (denominator)?

average amount invested in the asset =  $450,000

Explanation:

given data

equipment costs = $700,000

residual value = $200,000

cost savings = $60,000

to find out

average amount invested in the asset

solution

we get here Average amount invested  that is express as

average amount invested in the asset = ( Amount invested + Residual value) ÷  2     ........................1

put here value we get

average amount invested in the asset =

average amount invested in the asset =  $450,000

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