A Firm Is Considering Purchasing Two Assets

question 88

Multiple Choice

A firm is considering purchasing two assets.Asset A will have a useful life of 12 years and cost $3 million; it will have installation costs of $400,000 and a salvage or residual value of $400,000.Asset B will have a useful life of 8 years and cost $2.5 million; it will have installation costs of $300,000 and a salvage or residual value of $800,000.Which asset will have a greater annual straight-line depreciation?

• A)Asset A has $30,000 more in depreciation per year.
• B)Asset A has $37,500 more in depreciation per year.
• C)Asset B has $30,000 more in depreciation per year.
• D)The depreciation per year is the same for each asset.

---

Definitions:

Repaid

The act of paying back money that was borrowed from a person, bank, or financial institution.

Interest Rate

The ratio at which interest is applied to money loaned by a borrower from a lending party.

Compounded Semi-annually

A financial term indicating the interest on an investment is calculated and added to the principal balance twice every year, enhancing the total return over periods.

Obligation

A duty or commitment to pay money or perform some action.