Question

Andrews bought new equipment that cost \( \$ 45,000,000 \) with a 15 -year life. At the end of the 15 years, it believes it can sell the equipment for \( \$ 15,000,000 \). What is its annual depreciat

Answer 1

The annual depreciation of the equipment is $2,000,000.

Step-by-step explanation:

The annual depreciation of the equipment can be calculated using the formula:

Annual Depreciation = (Initial Cost - Salvage Value) / Life of the equipment

Given that the initial cost of the equipment is $45,000,000 and the salvage value is $15,000,000, and the life of the equipment is 15 years, we can calculate the annual depreciation as follows:

Annual Depreciation = ($45,000,000 - $15,000,000) / 15

Annual Depreciation = $30,000,000 / 15

Annual Depreciation = $2,000,000

Answer 2

The annual depreciation of the equipment is calculated using straight-line depreciation, yielding $2,000,000 per year over its 15-year life span.

Step-by-step explanation:

The student is asking about how to calculate the annual depreciation of new equipment for a business. The cost of the equipment is $45,000,000 and it has a 15-year life. After the 15 years, it is expected that the equipment can be sold for $15,000,000. To calculate the annual depreciation, we use straight-line depreciation, which spreads the cost of the asset evenly over its useful life.

The formula for straight-line depreciation is:

Annual Depreciation = (Cost of the Asset - Salvage Value) / Useful Life

In this case, we plug in the numbers:

Annual Depreciation = ($45,000,000 - $15,000,000) / 15 years

Annual Depreciation = $30,000,000 / 15 years

Annual Depreciation = $2,000,000 per year.

Therefore, the equipment will depreciate by $2,000,000 each year over its 15-year lifespan.