A firm is considering purchasing an asset that will have a useful life

A firm is considering purchasing an asset that will have a useful life of 8 years and cost $5.5 million; it will have installation costs of $90,000 and a salvage or residual value of $1,600,000. What is the annual straight-line depreciation for this asset

A) $400,000 per year
B) $422,000 per year
C) $498,750 per year
D) $530,450 per year

ANSWER

Answer: C
Explanation: C) Annual depreciation for Asset = (Asset Cost + Installation Cost – Salvage Value) / Useful Life = ($5.5 million + $0.09 million – $1.6 million) / 8 years = $498,750 per year.