The management of White Industries is considering the purchase of a new machine costing $500,000 with no residual value. The company desired rate of return is 6%. The estimated average annual operating income of the investment is $40,000 per year for 10 years. The estimated annual cash flows of the investment is $70,000 for 10 years.. The net present value for this investment is: A) $515,200 B ($205,600) C) $15,200 $294,400

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Depreciation Methods

The word "depreciation" is defined as an accounting method wherein the cost of tangible assets is spread over its useful life and it usually denotes how much of the assets value has been used up. The depreciation is usually considered as an operating expense. The main reason behind depreciation includes wear and tear of the assets, obsolescence etc.

Depreciation Accounting

In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.