An airplane costing $5 million is expected to be flown 800,000 miles over its lifetime of 8 years,at which time it can be sold for $400,000.After 6 years,the book value of the plane using the physical service method is $1.2 million.How many miles is the airplane flown in total over its first 6? (Answer to the nearest mile)

Question

Quizplus · Accepted Answer

We can use the formula for the physical service method of depreciation to find the annual depreciation of the airplane:

Annual Depreciation = (Cost - Salvage Value) / Total Estimated Miles

Annual Depreciation = ($5,000,000 - $400,000) / 800,000 = $5.50 per mile

To find the book value of the airplane after 6 years, we can subtract the total depreciation over 6 years from the cost:

Book Value after 6 years = Cost - (Annual Depreciation x Miles Flown in 6 years)

$1,200,000 = $5,000,000 - ($5.50 x Miles Flown in 6 years)

Miles Flown in 6 years = ($5,000,000 - $1,200,000) / $5.50 = 660,870 miles

Therefore, the airplane is flown 660,870 miles over its first 6 years.

An Airplane Costing $5 Million Is Expected to Be Flown