The Hanna Company uses straight-line depreciation and is considering a capital expenditure of which the following relevant cash flow data have been estimated:

Total operating income from the asset over the 3-year period is

Question

The Hanna Company uses straight-line depreciation and is considering a capital expenditure of which the following relevant cash flow data have been estimated:

Total operating income from the asset over the 3-year period is

Quizplus · Accepted Answer

To calculate the total operating income from the asset over the 3-year period, we need to first calculate the annual depreciation expense, which is:

($800,000 - $60,000) / 3 = $246,667

Next, we need to subtract the annual depreciation expense from the operating revenues to calculate the operating income:

Year 1: $300,000 - $246,667 = $53,333
Year 2: $325,000 - $246,667 = $78,333
Year 3: $350,000 - $246,667 = $103,333

Finally, we add up the operating incomes over the 3-year period:

$53,333 + $78,333 + $103,333 = $235,000

Therefore, the correct answer is D) $135,000.

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