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10 February, 21:19

A firm is considering purchasing an asset that will have a useful life of 15 years and cost $7.5 million; it will have installation costs of $300,000 and a salvage or residual value of $1,800,000. What is the annual straight minus line depreciation for this asse

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  1. 10 February, 21:45
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    The annual straight line depreciation for this asset is $400,000

    Explanation:

    Total cost of the asset = Purchased cost + installation costs

    = $7,500,000 + $300,000 = $7,800,000

    The firm uses the straight-line depreciation method, Depreciation Expense each year is calculated by following formula:

    Annual Depreciation Expense = (Cost of Asset - Salvage Value) / Useful Life

    In there, the asset will have salvage value of $1,800,000 and useful life of 15 years

    Annual Depreciation Expense = ($7,800,000 - $1,800,000) / 15 = $6,000,000/15 = $400,000
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