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lectur7-page25 - Provide for Maintenance and Growth of the...

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25 25 Provide for Maintenance and Growth of the System 1.Accomplished by providing for the replacement of the machinery, buildings, etc., that are used up in the course of producing the current outputs. (ARF) 2. In a free enterprise economy, output prices are usually high enough to allow producers to cover their day to day production expenditures, and also allow for depreciation of capital goods. ARF stand for A sset R eplacement F und. An Asset Replacement Fund is used by business owners to save money for the replacement of worn out capital goods. Business owners should place a certain amount of money in their Asset Replacement Fund each year. Their goal is to accumulate enough money in their Asset Replacement Fund to be able to buy new capital goods when the old ones wear out. The money that is put in an Asset Replacement Fund comes from the profits of the business. How much money should be put into this fund each year? In the simplest case, the amount of money that you should put in an Asset Replacement Fund is equal to the annual, straight-line depreciation. Annual
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This note was uploaded on 12/29/2011 for the course ECO 210 taught by Professor Malls during the Fall '10 term at SUNY Stony Brook.

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