Answer to Question #239521 in Economics for s1001

Question

Westchester City is constructing a new city hall. The building will cost $40 million and is estimated to have a useful life of 40 years. Based on the experience of similar cities and the best estimates of the city’s engineers, Westchester’s planners expect that at the end of 40 years the building will have to be torn down and rebuilt, so it is not expected to have any value at the end of 40 years. It will cost $6 million to acquire equipment for the new center. Equipment is assumed to last for 10 years. The city estimates that the equipment can be sold for 20 percent of its cost at the end of its useful life. If the city undertakes this project, what will the building and equipment expense be in the first year after the center is opened?

Answer 1

Depreciation per year for building is $40mln/40years=$1 mln. Depreciation per year for equipment is ($6mln-0.2×$6 mln)/10years=$0.48 mln. So, in the1st year the building and equipment expense will be $1.48 mln