Economic Life

The time period over which an asset's NPV is maximized. Economic life can be less than absolute physical life for reasons of technological obsolescence, physical deterioration, or product life cycle.

Useful Life

The amount of time, as determined by the IRS, that an asset is expected to be used. The useful life is important in determining taxes assessed on the depreciated value of the asset each year. Theoretically, an asset's useful life is equal to its absolute physical life, but, because the useful life is an estimation, this is not always the case.

economic life

The period of time during which a fixed asset competitively produces a good or service of value. The economic life of an asset may be particularly short in a rapidly changing field such as electronics where new developments often render an asset obsolete shortly after it is purchased. Companies sometimes continue to carry assets with expired economic lives on their balance sheets because they do not wish to penalize their earnings by writing off the assets. See also physical life.

Wall Street Words: An A to Z Guide to Investment Terms for Today's Investor by David L. Scott. Copyright © 2003 by Houghton Mifflin Company. Published by Houghton Mifflin Company. All rights reserved. All rights reserved.

economic life

The period of time during which an improvement has value in excess of its salvage value;the useful life span of an improvement.