Annuity depreciation method
ID:CVADM
Video Overview
A financial manager needs to make decisions regarding the entity’s acceptance of proposed projects that require the expansion of their facilities. These types of decisions are known as capital budgeting. There are various techniques that are used to make these decisions based on which projects will add value to the firm. Two capital budgeting techniques are return on capital employed (ROCE) and residual income. There are two different depreciation methods used to depreciate the non-current asset that needs to be purchased which forms part of capital employed. Either the straight line method is used or the annuity depreciation method is used. In this tutorial we will focus on the annuity depreciation method.
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