M9-4 Computing Book Value (Straight-Line Depreciation) A machine that cost $400,000 has an estimated residual value of $40,000 and an estimated useful life of four years. The company uses straight-line depreciation. Calculate its book value at the end of year 3.

M9-4 Computing Book Value (Straight-Line Depreciation) A machine that cost $400,000 has an estimated residual value of $40,000 and an estimated useful life of four years. The company uses straight-line depreciation. Calculate its book value at the end of year 3.

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Chapter10: Project Cash Flows And Risk

Section: Chapter Questions

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Question

LO 9-3 M9-4 Computing Book Value (Straight-Line Depreciation)
A machine that cost $400,000 has an estimated residual value of $40,000 and an estimated useful
life of four years. The company uses straight-line depreciation. Calculate its book value at the end
of year 3.

Expert Solution

Step 1

Book value = Original cost - Accumulated Depreciation

Under the straight line depreciation method, the depreciable cost of the asset is distributed to its useful life equally.

Straight line depreciation = (Orginal cost - Residual value) / Useful life

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