A Firm Is Considering Purchasing Two Assets

question 96

Multiple Choice

A firm is considering purchasing two assets.Asset L will have a useful life of 20 years and cost $5 million;it will have installation costs of $1 million but no salvage or residual value.Asset S will have a useful life of 8 years and cost $2 million;it will have installation costs of $500,000 and a salvage or residual value of $400,000.Which asset will have a greater annual straight-line depreciation?

• A)Asset L has $12,500 more in depreciation per year.
• B)Asset L has $37,500 more in depreciation per year.
• C)Asset S has $12,500 more in depreciation per year.
• D)Asset S has $37,500 more in depreciation per year.

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Definitions:

Net Loss

The amount by which total expenses exceed total revenues in a specific period, indicating a negative financial performance.

Owner's Equity

The residual interest in the assets of the entity after deducting liabilities, representing the ownership interest of the business owners.

Expenses

Costs incurred by a business in the process of earning revenue.

Owner's Equity

The residual interest in the assets of an entity after deducting liabilities, often seen as the net worth or book value of the company to the owners.