Question

If a company spends $14.4 million to install refurbished footwear-making equipment with capacity to produce 1 million pairs of athletic footwear at its North American production facility, then its annual depreciation costs at that facility will rise by

Answer 1

The annual depreciation costs at that facility will rise by 10% or $1,440,000.

Annual depreciation costs

Life of the equipment = 10 Years

Salvage value = 0

Annual Depreciation= (Cost of equipment - Estimated salvage value) / Estimated useful life

Annual Depreciation= ($14.4 million- 0) / 10

Annual Depreciation= $1,440,000

or

Annual Depreciation= $1,440,000/$14,400,000 ×100

Annual Depreciation= 10%

Inconclusion the annual depreciation costs at that facility will rise by 10% or $1,440,000.

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