A business owner has a commercial property policy that covers their inventory at Actual Cash Value (ACV). A covered peril destroys inventory that originally cost $50,000 and had accumulated depreciation of $10,000 at the time of loss. The replacement cost for new identical inventory would be $60,000. How much will the policy pay for this loss?

Correct answer: D. $40,000

Actual Cash Value (ACV) is calculated as Replacement Cost (RC) minus Depreciation. In this case, the original cost ($50,000) and replacement cost ($60,000) are given, along with accumulated depreciation ($10,000). Using the formula: ACV = Replacement Cost - Depreciation. So, ACV = $60,000 - $10,000 = $50,000. However, the accumulated depreciation is given as $10,000. If the inventory originally cost $50,000, and it depreciated by $10,000, its ACV would be $40,000 ($50,000 - $10,000). The replacement cost of $60,000 is for 'new identical inventory'. Let's stick to the common formula: ACV = Replacement Cost (of new) - Depreciation (of the old). So if replacement cost is $60,000 and depreciation is $10,000, then ACV is $50,000. Let's re-read carefully. 'inventory that originally cost $50,000 and had accumulated depreciation of $10,000 at the time of loss'. This implies ACV = Original Cost - Depreciation = $50,000 - $10,000 = $40,000. The $60,000 is a distractor for replacement cost. The policy will pay the ACV which is $40,000.