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 15 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 6 years and cost $1.26 million; it will have installation costs of $220,000 and no salvage value. Which asset will have a greater annual straight-line depreciation?

a. Asset A has $10,000 more in depreciation per year.

b. Asset A has $20,000 more in depreciation per year.

c. Asset B has $10,000 more in depreciation per year.

d. Asset B has $20,000 more in depreciation per year.

e. None of the above

a. Asset A has $10,000 more in depreciation per year.

b. Asset A has $20,000 more in depreciation per year.

c. Asset B has $10,000 more in depreciation per year.

d. Asset B has $20,000 more in depreciation per year.

e. None of the above

Explanation / Answer

Asset A Depreciation= ($3,000,000 + $400,000)/15 years $226,666.67 Asset B Depreciation= ($1,260,000 + $220,000)/6 years $246,666.67 d. Asset B has $20,000 more in depreciation per year $20,000.00

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