To find the average capital investment, which calculation is correct?

The calculation for average capital investment is typically determined by considering the initial investment amount and its eventual residual value at the end of the investment period, which is often referred to as the salvage value. The correct formula to find the average capital investment is to take the sum of the initial investment and the salvage value, then divide that sum by 2.

In this context, both the terms "salvage value" and "scrap value" generally refer to the amount that can be recovered from the asset at the end of its useful life. Therefore, using the combined sum of the initial investment and the salvage or scrap value divided by 2 accurately reflects the average investment over the life of the asset. This method provides insight into the capital that is effectively tied up in the asset over its entire lifespan, accounting for both the cost incurred initially and the end-of-life value.

The other options involve calculations that do not effectively reflect the average capital investment concept. For example, merely averaging total capital costs or expenses does not provide the necessary insight into the average investment when depreciating assets are considered.