# Depreciation of an equipment with salvage value?

Hello. I’m struggling with this part in capital budgeting session.

Assume:

Straight-line method.

The cost of equipment is 5000.

Live for 4 years. The salvage value after 4 years is 600.

Okay, so I will depreciate this equipment down to zero: (5000 / 4) ? or: (5000 - 600) / 4 ???

The problem is I don’t understand the salvage value in this part.

I remember in FRA session, they calculated: (Cost - Residual value)/(estimated useful life)

but in Capital budgeting, they didn’t mention anything about that.

What should I do with this “salvage value” ?

Unfortunately, I don’t (yet) have the 2020 Level II curriculum, so I’m looking at 2019. (Is the 2020 Capital Budget reading still Stowe & Gagné?)

A quick skim through the reading suggests that they’re ignoring any salvage value when computing depreciation.

If this arises on the exam, I would expect that they would be explicit about whether or not to include salvage value in computing depreciation. The answer’s probably not, as that isn’t remotely the point of this section of the curriculum.