Final answer:
The residual value of an asset, also known as salvage value, plays a significant role in depreciation calculations and financial reporting.
Explanation:
Residual value is the expected value of an asset at the end of its useful life. It is also known as salvage value and is a crucial component in calculating depreciation.
Accountants record assets at historical cost, also called book value, on the organization's books. Market value is the estimated amount a buyer would pay for the asset, but accountants prefer historical cost for financial reporting.
The value of an asset is determined by factors like the expected return, carrying costs, and liquidity premium. Calculating this value involves discounted present value and accounting for risk through a risk premium.
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