John Biner's roof was totally ruined by a fire.The insurance company estimates that the cost of building a new roof is $10,000.It also estimates that roofs like this are expected to last 20 years.The existing roof had been in place for five years.Given this information,the actual cash value of the damage is

Question

Quizplus · Accepted Answer

The actual cash value of the damage is calculated by taking the replacement cost minus depreciation. The roof costs $10,000 and is expected to last 20 years, so it depreciates at a rate of $500 per year ($10,000 / 20 years). After 5 years, the depreciation is $2,500 ($500 per year * 5 years), so the actual cash value is $7,500 ($10,000 - $2,500).

John Biner's Roof Was Totally Ruined by a Fire