Compute the depreciation expense

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Question - On January 1, 1990 Company A purchases a machine for $50 million dollars. Company A estimates the useful life of the asset to be 25 years and assumes salvage value by the end of its useful life will be 10% of the original cost of the asset.

a. Compute the depreciation expense (straight-line method) for the 25 years of the assets useful life.

b. How does depreciation expense change when you lease an asset instead of purchase it (the asset qualifies for a capital lease). Assume that the present value of future minimum lease payments is $50 million and that implicit interest rate is 12%. Also assume the length of the lease is the same as the estimated useful life of the asset.

Reference no: EM132863569

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