week 3 tutorial 1 question

[Inquisitive Learner]

Q. A company provides two equipment A and B having the working life of 3 years and

4 years respectively. The value of equipment A and B decreases yearly according to

equations 5x + 12.5vA − 62.5 = 0 and 6x + 12vB + −72 = 0 respectively, where vA and

vB are the values (in thousands) of A and B respectively, and x is the number of years

from the date of purchase.

If the company will buy back an equipment after its work life, and Vijay has re-

quirement of such equipment for 12 year, which kind of equipment will cost him

lesser?

After 12 years cost for A: 5000 +3(1200). why?

Why 1200 gets fixed why doesnt it still get depreciated by 400 every 3 years? 

[Anand Iyer]

Vijay buys equipment A for Rs.5000, which gets depreciated to Rs.3800 by the end of 3rd year.  

Vijay sells it to the company, who pays him Rs. 3800.  

But, Vijay must still pay Rs.5000/- to get another equipment A so that he can continue operations.  

Thus, the net additional expense is Rs.1200.  

Thus, when he enters into the fourth year, Vijay's expense is 5000 + 1200.

This cycle continues for 12 years, that is 3 more times, thus resulting in 5000 + (1200 * 3 times)

Hope this clears up the doubt.