A firm is considering purchasing two assets.Asset A will have a useful life of 12 years and cost $4 million; it will have installation costs of $600,000 but no salvage or residual value.Asset B will have a useful life of 8 years and cost $2.3 million; it will have installation costs of $220,000 and a salvage or residual value of $100,000.Which asset will have a greater annual straight-line depreciation?
A)Asset A has $30,000 more in depreciation per year.
B)Asset A has $80,833 more in depreciation per year.
C)Asset B has $72,458 more in depreciation per year.
D)Asset B has $108,622 more in depreciation per year.

Question

Quizplus · Accepted Answer

Asset A's total cost is $4,600,000 ($4,000,000 + $600,000) with no salvage value, leading to an annual depreciation of $383,333 ($4,600,000 / 12 years). Asset B's total cost is $2,520,000 ($2,300,000 + $220,000) with a salvage value of $100,000, resulting in an annual depreciation of $302,500 (($2,520,000 - $100,000) / 8 years). The difference is $80,833 ($383,333 - $302,500).

A Firm Is Considering Purchasing Two Assets