A Company Purchases for $48,000 an Asset That Has a Useful

question 170

Multiple Choice

A company purchases for $48,000 an asset that has a useful life of six years and no salvage value.After two years,the company spends $8,000 for a major overhaul that will extend the machine's useful life four years beyond the original six.Assuming straight-line depreciation,how much depreciation should be taken in year 3?

• A)$4,000
• B)$5,000
• C)$5,600
• D)$8,000

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Definitions:

Foreign Price Level

A measure of the average prices of goods and services in a country relative to those in other countries, affecting exchange rates and purchasing power.

Real Exchange Rate

The rate at which a person can exchange the currency of one country for the currency of another and obtain the same quantity of goods.

Purchasing-power Parity

An economic theory that compares different countries' currencies through a "basket of goods" approach to assess relative currency value and living standards.

Nominal Exchange Rate

The Nominal Exchange Rate is the rate at which one country's currency can be traded for another's, not adjusted for inflation, reflecting the current value of one currency compared to another.