A Firm Is Considering Purchasing an Asset That Will Cost

question 96

Multiple Choice

A firm is considering purchasing an asset that will cost $1 million.Other depreciable costs include $100,000 in installation costs.If the asset is classified in the 3-year class,what is the annual depreciation for each year for this asset using the fixed depreciation percentages given by MACRS? (The percentages are 33.33%,44.45%,14.81%,and 7.41%,respectively.)

• A)$366,667,$366,667,$366,667 and $0 for years 1,2,3,and 4,respectively
• B)$275,000,$275,000,$275,000,and $275,000 for years 1,2,3,and 4,respectively
• C)$366,630,$488,950,$162,910,and $81,510 for years 1,2,3,and 4,respectively
• D)$366,630,$488,950,$81,510,and $81,510 for years 1,2,3,and 4,respectively

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Definitions:

Optimal Extraction Level

The most efficient rate of resource extraction that balances immediate benefits with long-term sustainability.

Present Value

The current worth of a future sum of money or stream of cash flows given a specified rate of return.

Extraction Costs

The expenses associated with the process of removing raw materials from the earth for use in production or consumption.

Fishery Collapse

A rapid decline in a fishery’s population because its fish are being harvested faster than they can reproduce.