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The Digby Company has just purchased $40,900,000 of plant and equipment that has an estimated useful life of 15 years
The Digby Company has just purchased $40,900,000 of plant and equipment that has an estimated useful life of 15 years. Suppose at the end of 15 years this plant and equipment can be salvaged for $4,090,000 (1/10th of its original cost). What will be the book value of this purchase (excluding all other Plant and Equipment) after its first year of use?
Expert Solution
Computation of the book value of the purchase after its first year of use:-
Depreciation = (Cost - Salvage value) / Estimated useful life
= ($40,900,000 - $4,090,000) / 15
= $36,810,000 / 15
= $2,454,000
Book value = Cost - Accumulated depreciation
= $40,900,000 - $2,454,000
= $38,446,000
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