Question

A firm is considering purchasing an asset that will have a useful life of 15 years and cost​ $7.5 million; it will have installation costs of​ $300,000 and a salvage or residual value of​ $1,800,000. What is the annual straight minus line depreciation for this​ asse

Answer 1

Answer:

The annual straight line depreciation for this​ asset is $400,000

Explanation:

Total cost of the asset = Purchased cost + installation costs

= $7,500,000 +  $300,000 = $7,800,000

The firm uses the straight-line depreciation method, Depreciation Expense each year is calculated by following formula:  

Annual Depreciation Expense = (Cost of Asset − Salvage Value )/Useful Life  

In there, the asset will have salvage value of $1,800,000 and useful life of 15 years

Annual Depreciation Expense = ($7,800,000 - $1,800,000)/15 = $6,000,000/15 = $400,000