When Originally Purchased, a Vehicle Costing $23,000 Had an Estimated

question 37

Multiple Choice

When originally purchased, a vehicle costing $23,000 had an estimated useful life of 8 years and an estimated salvage value of $3,000. After 4 years of straight-line depreciation, the asset's total estimated useful life was revised from 8 years to 6 years and there was no change in the estimated salvage value. The depreciation expense in year 5 equals:

• A) $11,500.
• B) $2,875.
• C) $5,000.
• D) $2,500.
• E) $5,750.

---

Definitions:

MM Model

The MM Model, or Modigliani-Miller Theorem, is a finance theory that suggests market value of a company is determined by its earning power and risk of underlying assets, independent of its capital structure.

Cost Of Equity

The return a company requires to decide if an investment meets capital return requirements, often used in capital budgeting to evaluate projects.

Capital Structure

The composition of a company's liabilities and equity, describing how it finances its overall operations and growth.

Earnings Per Share

A financial ratio that divides a company's net earnings available to common shareholders by the number of outstanding shares, indicating the profitability on a per-share basis.