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Suppose that you are a manager for November Enterprise, which just purchased a new piece of equipment for $9,700. You are trying to determine the
Suppose that you are a manager for November Enterprise, which just purchased a new piece of equipment for $9,700. You are trying to determine the estimated useful life and residual value for the new equipment for straight-line depreciation calculations. You perform some research and gather the following information for your estimates:
- The old piece of equipment that this new purchase is replacing lasted for 7.5 years. November Enterprise sold the old equipment for $1,200.
- A competitor in the same industry uses a useful life of 4 years and residual value of $3,500 for its equipment.
- November Enterprise predicts that equipment technology will change rapidly in the next 5 years. November Enterprise intends to upgrade equipment when this new technology is available.
- An internet search shows that used equipment currently sells for approximately $1,000 (8 years old) to $6,000 (3 years old).
Consider this information to make an estimate for the useful life and residual value of this equipment. There is no right or wrong answer, but please explain how you determined your estimates.
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