Prospect Automotive, a manufacturer of custom auto parts, is contemplating a $2,
ID: 2626125 • Letter: P
Question
Prospect Automotive, a manufacturer of custom auto parts, is contemplating a $2,000,000 investment in a new production facility. The economic life of the facility is estimated to be five years, after which the facility will be obsolete and have no salvage value. To make the new facility operational, building improvements costing $800,000 will be required. In addition, a $100,000 increase in working capital will be needed.
What items can you depreciate? Are additions to working capital depreciable? What is the total investment? What is the yearly depreciable amount?
Explanation / Answer
no working capital is not depreciable
total investment = 2000000 + 800000 = 2800000
depreciation = 2100000/5 = 560000 each year
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