Assume that a firms beginning capital stock is $500,000 and capital depreciates at a rate of five

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Question:

Assume that a firm’s beginning capital stock is $500,000 and capital depreciates at a rate of five percent per annum. Now assume that the firm also spends the following on gross investment (starting from the beginning year): $10,000, $30,000, and $30,000. Then the firm’s capital stock at the beginning of the third year is different from the beginning capital stock by

(1) $70,000.00.

(2) -$25,000.00.

(3) -$3,787.50.

(4) $45,000.00