Discussion
An aircraft costing \( 90 \) million dollars is depreciated straight-line over \( 20 \) years to a residual value of \( 10 \) million. The annual depreciation is
Answer: C
Correct answer: 4.0 million dollars
Straight-line depreciation writes off the difference between cost and residual value evenly across the period:
\[ D = \frac{90 - 10}{20} = \frac{80}{20} = 4.0\ \mathrm{million\ dollars\ per\ year} \]
The distractor \( 4.5 \) ignores the residual value and depreciates the full purchase price. Residual value matters a great deal in practice: an aircraft with a strong second-hand market can be depreciated to a higher residual, reducing the annual charge and hence the cost per block hour.
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