A firm is considering purchasing an asset that will have a useful life of 15 years and cost $7.5 million; it will have installation costs of $300,000 and a salvage or residual value of $1,800,000.What is the annual straight-line depreciation for this asset?
A)$400,000 per year
B)$422,000 per year
C)$498,750 per year
D)$530,450 per year

Question

Quizplus · Accepted Answer

The annual straight-line depreciation is calculated by dividing the depreciable cost of the asset by its useful life. The depreciable cost is the cost of the asset minus its salvage value. In this case, the depreciable cost is $7,500,000 - $1,800,000 = $5,700,000. The useful life is 15 years. Therefore, the annual straight-line depreciation is $5,700,000 / 15 = $400,000.

A Firm Is Considering Purchasing an Asset That Will Have