CFA Level I · CFA Level I Exam · Analysis of Long-Term Assets
A company reports PP&E (in $ millions): gross 1,200, accumulated depreciation 480, annual depreciation expense 100. The estimated remaining useful life of the PP&E is closest to:
The remaining useful life is about 7.2 years. Net PP&E is 1,200 minus 480, or 720, divided by annual depreciation of 100. The 4.8-year figure is the average age of the assets, and 12.0 years is the estimated total useful life.
- A4.8 years
- B7.2 yearsCorrect
- C12.0 years
Explanation
Net PP&E = 1,200 − 480 = 720. Remaining life = net PP&E / depreciation expense = 720 / 100 = 7.2 years. 4.8 years is the average age (480/100) and 12.0 years is total useful life (1,200/100).
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