Economic depreciation is the
A) fall in value of the firm's capital, calculating using IRS rules.
B) opportunity cost of owning and using the firm's capital, measured as the change in market value.
C) decrease in the value of finished goods and services that are held in inventories prior to being sold.
D) term given to a fall in a company's stock price.
E) name given to how accountants calculate the depreciation of the company's capital.

Question

Quizplus · Accepted Answer

Economic depreciation refers to the reduction in the market value of a firm's capital assets over time, which reflects the opportunity cost of using those assets instead of selling them and investing the proceeds elsewhere. It differs from accounting depreciation, which is based on the estimated useful life of the asset and the method chosen by the company to allocate the cost of the asset over that period. Other choices are incorrect because they either refer to IRS rules, inventory accounting, stock prices, or accounting methods rather than market value changes.

Economic Depreciation Is the