Assume that a company buys land with a building on it for $1,500,000. At the time...
Assume that a company buys land with a building on it for $1,500,000. At the time of purchase the company planned to tear the old building down and build a new building. The cost to tear down and dispose of the old building was $150,000 and they sold some material for $25,000. The cost to build the new building was $5,500,000 and the cost to grade the lot and landscape was $600,000. It is expected the life of the building is 25-40 years with a salvage value of $2,000,000 to $3,000,000.
Discussion Questions:
- If management desired the smallest depreciation possible over the next five (5) years, what recommendation would you make? Support your recommendation by calculations. Why might the company want to do this?
- If management desired the largest depreciation possible over the next five (5) years, what recommendation would you make? Support your recommendation by calculations. Why might the company want to do this?
- Imagine that this company came to you before undertaking this project and presented a proposal outlining the information provided above. What problems or concerns would you have raised for the company to consider?
Homework Answers
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Assume that a company buys land with a building on it for
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