AACE International CCP - Certified Cost Professional (CCP) Certification Exam

Question #6 (Topic: Demo Questions)

A used concrete pumping truck can be purchased for $125,000. The operation costs are expected to be $65,000 the first year and increase 5% each year thereafter. As a result of the purchase, the company will see an increase in income of $100,000 the first year and 5% more each subsequent year. The company uses straight-line depreciation. The truck will have a useful life of five (5) years and no salvage value. Management would like to see a 10% return on any investment. The company's tax rate is 28%.
The value of the truck at the end of year five (5) would be:

A.

$0

B.

$14,265

C.

$25,000

D.

$23,366

Correct Answer: A

Explanation:

Since the truck is being depreciated using the straight-line method over five years with no salvage value, the book value of the truck at the end of the five-year useful life will be $0 . This means the entire cost of the truck would have been fully depreciated by the end of the five years.

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