Airline A depreciates its airplanes over a 15-year period and estimates a salvage value of 10% of

Question:

Airline A depreciates its airplanes over a 15-year period and estimates a of 10% of the cost of the plane. At the same time, Airline B depreciates identical airplanes over a 25-year period and provides for a 15% . These different assumptions resulted in markedly different operating results. For example, if one airplane costs $10 million, Airline A would depreciate $260,000 more per year for 15 years than would Airline B.
Which company’s estimate of useful life more closely reflects reality? Would you feel comfortable as a passenger in an airplane that is 25 years old? Does the fact that Airline B subsequently went out of business provide any information as to why its estimates were so substantially different from those of financially sound Airline A?

Salvage Value
Salvage value is the estimated book value of an asset after depreciation is complete, based on what a company expects to receive in exchange for the asset at the end of its useful life. As such, an asset’s estimated salvage value is an important...