A Building with a Cost of $500 000,an Estimated Residual

question 17

Multiple Choice

A building with a cost of $500 000,an estimated residual value of $50 000,and an estimated useful life of 20 years was depreciated by the straight-line method for 10 years.In the eleventh year,it was determined that the useful life should be extended by 10 years (i.e.from 20 years to 30 years) .The residual value was to remain the same.The depreciation expense for the current and future years is:

• A) $15 000
• B) $11 250
• C) $13 750
• D) $12 500.

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Definitions:

Required Return

The expected gain or loss from an investment over a specified period, including both income and changes in asset value.

Capital Structure

The mixture of debt and equity financing a company uses to fund its operations and grow.

Debt-equity Ratio

A measure used to assess a company's financial leverage, calculated by dividing its total liabilities by its shareholder equity.

Weighted Average Cost of Capital

The rate that a company is expected to pay on average to all its security holders to finance its assets, weighting the cost of each source of capital (equity, debt, etc.) by its proportion in the capital structure.