A firm is considering purchasing two assets. Asset A will have a useful life of

Question

A firm is considering purchasing two assets. Asset A will have a useful life of 10 years and cost $3 million; it will have installation costs of $400,000 but no salvage or residual value. Asset B will have a useful life of 4 years and cost $1.3 million; it will have installation costs of $180,000 and also have no residual value. Which asset will have a greater annual straight-line depreciation? Answer                                                   
           Asset A has $40,000 more in depreciation per year.                             
           Asset B has $30,000 more in depreciation per year.                             
           Asset A has $30,000 more in depreciation per year.                             
           Asset B has $40,000 more in depreciation per year. A firm is considering purchasing two assets. Asset A will have a useful life of 10 years and cost $3 million; it will have installation costs of $400,000 but no salvage or residual value. Asset B will have a useful life of 4 years and cost $1.3 million; it will have installation costs of $180,000 and also have no residual value. Which asset will have a greater annual straight-line depreciation? A firm is considering purchasing two assets. Asset A will have a useful life of 10 years and cost $3 million; it will have installation costs of $400,000 but no salvage or residual value. Asset B will have a useful life of 4 years and cost $1.3 million; it will have installation costs of $180,000 and also have no residual value. Which asset will have a greater annual straight-line depreciation? Asset A has $40,000 more in depreciation per year. Asset B has $30,000 more in depreciation per year. Asset A has $30,000 more in depreciation per year. Asset B has $40,000 more in depreciation per year.                             
           Asset A has $40,000 more in depreciation per year.                             
           Asset B has $30,000 more in depreciation per year.                             
           Asset A has $30,000 more in depreciation per year.                             
           Asset B has $40,000 more in depreciation per year.

Explanation / Answer

we know that

St.line deprecaition = (intaial investment-salvage value)/useful life

so here for

Asset A

st.line deprecaition = (3,000,000+400,000 -0)/10

=$340,000

for

Asset B

St.line depreciation =(1,300,000+180,000-0)/4

=370,000

therefore ans is

option (B)

Asset B has $30,000 more in depreciation per year

Thnak you..:)

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