(Answered) Assume the value of a piece of machinery at time t vt is

Economics

Assume the value of a piece of machinery at time t, Vt , is expressed as Vt = (1 - λ)Vt -1 - M

where λ is the depreciation rate and M is the maintenance costs. Write the general solution of the difference equation. Assume the initial value of the machinery is $500,000, the depreciation rate is 10 % annually, and the maintenance cost is $2,000,

(a) What is the value of the equipment after 5 years?

(b) What is its value after 10 years?

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