1. A machine costs $35,000 and has an estimated scrap value of $3,000 at the end of eight years. It produces 5,000 units of output per year and the annual maintenance cost is $1,500.

a) (3 marks) What is the depreciation expense in year three assuming the constant percentage method?

b) (5 marks) How much would you recommend be spent on increasing the machines outputby 30% and extending its useful lifetime to 12 years? Assume j1 = 4% and the scrap value and maintenance costs stay the same.