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2. A lumber company purchases and installs a wood chipper for $280,000. The chipper is classified as MACRS 7-year property. The chipper’s useful life is 15 years. The estimated salvage value at the end of 15 years is $40,000. Using straight-line depreciation, what is the approximate first year depreciation?

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Answer:

Annual depreciation= $16,000

Explanation:

Giving the following information:

A lumber company purchases and installs a wood chipper for $280,000. The chipper’s useful life is 15 years. The estimated salvage value at the end of 15 years is $40,000.

Annual depreciation= (original cost - salvage value)/estimated life (years)

Annual depreciation= (280,000 - 40,000)/15= $16,000

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