A company is considering purchasing a piece of equipment that costs $5 million. The company will further incur a cost of $50,000 to deliver and install the equipment. If the equipment has a 10 year useful life and the company uses straight-line depreciation, then what is the yearly depreciation expense?
A)$505,000
B)$500,000
C)$5,000
D)$0

Question

A company is considering purchasing a piece of equipment that costs $5 million.   The company will further incur a cost of $50,000 to deliver and install the equipment. If the equipment has a 10 year useful life and the company uses straight-line depreciation, then what is the yearly depreciation expense?
A)​$505,000
B)​$500,000
C)​$5,000
D)​$0

Quizplus · Accepted Answer

The total cost of the equipment is the purchase price plus the delivery and installation cost, which is $5,000,000 + $50,000 = $5,050,000. Using straight-line depreciation over a 10-year useful life, the yearly depreciation expense is $5,050,000 / 10 = $505,000.

A Company Is Considering Purchasing a Piece of Equipment That