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A piece of equipment costs $1.2m. the equipment has a useful life of 4 years. in each of the four years, the investment generates a cash inflow of $0.5m. the impact of the investment project on net income is derived by subtracting depreciation from cash flow each year. assuming the equipment is depreciated on a straight-line basis over 4 years, what is the average contribution to net income across all four years

User Hammer
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Annual depreciation is
Cost of equipment÷useful life
1.2m÷4 years=0.3m

The average contribution to net income across all four years is
0.5m−0.3m=0.2m

The answer is 0.2m
User Liupeixin
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