SOLUTION: A business buys a car for $32 000. For the company records, the value of the car is depreciated each year. The value of the vehicle could be reduced by the same amount each year o
Question 1024636: A business buys a car for $32 000. For the company records, the value of the car is depreciated each year. The value of the vehicle could be reduced by the same amount each year over a given number of years until the value is zero. This is called straight line depreciation. Another method is to reduce the value of the car by a percentage each year, 20% for example.
The company decides to sell the car when the value has reduced to $10 000. Find the time it takes for the depreciated value of the car to reduce to less than $10 000 considering both depreciation methods. (Remember that you could use a spreadsheet to help solve this problem.) Answer by Theo(13342) (Show Source):
the assumption is that the depreciation is 20% of the remaining balance of the value of the car each year.
this means that the first year depreciation is 20% of 32000 = 6400.
the remaining balance for the next year is 32000 - 6400 = 25600.
the next year's depreciation is 20% of 25600 = 5120.
this continues for each succeeding year.
the following spreadsheet output shows you what happens.
straightline depreciation gets below 10,000 in the fourth year.
20% remaining balance depreciation gets below 10,000 in the sixth year.
what is more interesting, however, is that straightline fully depreciates the car after 5 years while 20% remaining balance would theoreticaly take forever to fully depreciates the car.
in the spreadsheet, 20% remaining balance depreciation went out 33 years and still had some remaining undepreciated value of the car left over (20.28...).
