Question

CarMax wishes to exchange a pre-fab building used in its operations. CarMax has received three offers from other companies in the industry, each of which lacks commercial substance:

MCI WorldCom offered to exchange a Gulfstream G-450 jet, and pay $46,100.
US Pharmaceutical offered to exchange a Black & Veatch knuckleboom loader, and pay $68,600.
Dyna-Flex offered to exchange a Komatsu 120-ton truck, and pay $43,800.

Information concerning each of the assets to be exchanged is noted below:

	Cost	Accum Depn	Fair Value
CarMax--pre-fab building	315,000	240,000	187,800
MCI WorldCom--Gulfstream G-450 jet	240,000	190,100	141,700
US Pharmaceutical--Black & Veatch knuckleboom loader	315,000	240,000	119,200
Dyna-Flex--Komatsu 120-ton truck	150,000	65,000	144,000

Based on the three offers above and assuming CarMax uses the straight-line method of depreciation with a salvage value of $2,300 an estimated useful life of 4 years, what is the annual depreciation expense of the exchanged asset that produces the least amount of depreciation expense for CarMax in future years?

Answer 1

										Est. Life		Depreciation
Assets						Fair Value		Salvage		(in years)		Expense*
MCI WorldCom--Gulfstream G-450 jet						$ 141,700.00		$ 2,300.00		4		$ 34,850.00
US Pharmaceutical--Black & Veatch knuckleboom loader						$ 119,200.00		$ 2,300.00		4		$ 29,225.00
Dyna-Flex--Komatsu 120-ton truck						$ 144,000.00		$ 2,300.00		4		$ 35,425.00
Depreciation Expense =			(Fair Value - Salvage)/ Estd. Life
So, if CarMax accepts knuckleboom loader in exchange of pre-fab building, the depreciation expense per year would be least.