An advanced computer system for a multinational corporation costs $500,000 and is expected to depreciate by 4% at the end of next year. The real interest rate is 4%. What is the user cost of the computer system for one year?
A)$540,000
B)$50,000
C)$20,000
D)$40,000

Question

Quizplus · Accepted Answer

The user cost formula is (depreciation + real interest cost) * initial cost. 
Depreciation for one year is 4% of $500,000 = $20,000. 
Real interest cost is 4% of $500,000 = $20,000. 
So the user cost for one year is ($20,000 + $20,000) * $500,000 = $40,000. 
Therefore, the best choice is D.

An Advanced Computer System for a Multinational Corporation Costs $500,000