Ford Motor Company said it would spend $200 million to refurbish its Mustang assembly plant in Dearborn, Michigan. The aging factory had been discussed as a candidate for closing, but Ford’s current capacity of Mustang production is barely able to keep pace with demand. REQUIRED:

a. What issues must be considered when deciding whether to capitalize or expense the $200 million expenditures?

b. Under what conditions could the $200 million cost be expensed even if it improved instead of maintained the plant?

c. Assume that the $200 million cost is capitalized and that the refurbishment extends the useful life of the factory. Explain how Ford will compute depreciation on its factory over its remaining useful life.