An analyst will most likely use the average age of depreciable assets to estimate the company’s: A) cash flows. B) earnings potential. C) near-term financing requirements. Correct Answer is C. Won’t you also want to estimate the cost (cash flow) that will be required to replace the asset? I think option A is also a reasonable answer because the company might be required to spend cash to acquire a newer asset in the future once their old asset is no longer useful/efficient. No?

Maybe it’s because average age of assets would be able to help describe near-term financing requirements pretty thoroughly. Whereas it would only describe a very small portion of cash flows.

Average age would help to determine if the long term assets are wearing out, and to replace them or to invest in newer assets company would incur capital expenditures for which they will need to raise money. These may be a big part of the total company assets so it is important that these financing cost should be predicted accurately. Cash flow prediction will occur after finance cost prediction.