The amount of the estimated average income for a proposed investment of $90,000 in a fixed asset,giving effect to depreciation (straight-line method),with a useful life of 4 years,no residual value,and an expected total income yield of $25,300,is

Question

Quizplus · Accepted Answer

Using the straight-line method of depreciation, we can calculate the annual depreciation as:

Depreciation per year = (Cost of asset - Residual value) / Useful life
Depreciation per year = ($90,000 - $0) / 4
Depreciation per year = $22,500

So, the yearly income before depreciation would be:

Yearly income before depreciation = Total income yield / Useful life
Yearly income before depreciation = $25,300 / 4
Yearly income before depreciation = $6,325

After deducting the yearly depreciation, the income would be:

Yearly income after depreciation = Yearly income before depreciation - Depreciation per year
Yearly income after depreciation = $6,325 - $22,500
Yearly income after depreciation = -$16,175

This means that the investment would result in a loss of $16,175 per year. Therefore, the estimated average income for the proposed investment is $6,325. Choice C is the correct answer.

The Amount of the Estimated Average Income for a Proposed