The Hanna Company uses straight-line depreciation and is considering a capital expenditure for which the following relevant cash flow data have been estimated: Total net inflows during the useful life of the asset are

Question

The Hanna Company uses straight-line depreciation and is considering a capital expenditure for which the following relevant cash flow data have been estimated:  Total net inflows during the useful life of the asset are

Quizplus · Accepted Answer

Since the company uses straight-line depreciation, the total depreciation expense will be the cost of the asset divided by its useful life. Therefore, the annual depreciation expense will be $150,000 ($1,500,000/10 years). The total net inflows during the useful life of the asset will be the sum of the annual cash inflows and the salvage value, minus the annual depreciation expense. 
Total net inflows = ($200,000 x 10 years) + $350,000 - ($150,000 x 10 years) 
Total net inflows = $2,000,000 + $350,000 - $1,500,000 
Total net inflows = $850,000 
Therefore, the correct answer is C) $585,000.

The Hanna Company Uses Straight-Line Depreciation and Is Considering a Capital