MC Qu. Your home insurance provides for replacement value for personal ... Your home insurance provides for replacement value for personal property losses. A microwave is stolen. It cost $288 two years ago and has an expected life of six years. A comparable microwave costs $400 today. What amount will the insurance company pay?

The insurance company will pay $192 which is present value of the asset

Explanation:

Depreciation is defined as the allocation of cost throughout the useful life of an asset. It refers to the rate at which an asset losses value over time.

The original value is used when calculating depreciation. Present market value is not used.

The value of the asset is spread out equally over its useful life.

In this instance

Depreciation per year = Asset value : Years of useful life

Depreciation per year = 288 : 6 = $48

The asset has been used for 2 years

Amount depreciated = 48 * 2 = $96

Present value = Original value - Depreciation

Present value = 288 - 96 = $192