Question #116801
A care price is $12,000 & its market value after 7-years is $5,000. In addition its
price is ascending by 4% yearly, estimate the following:
a. Depreciation rate in the first five years of its life.
b. Total depreciation in that period also.
c. The inflation rate.
1
Expert's answer
2020-05-26T11:03:45-0400

a) S=(((((((Si)P)iP)iP)iP)iP)iP)iPS^*=(((((((S*i)-P)*i-P)*i-P)*i-P)*i-P)*i-P)*i-P

S=Si7Pi71i1S^*=S*i^7-P*\frac{i^7-1}{i-1}

P=(Si7S)i1i71P=(S*i^7-S^*)*\frac{i-1}{i^7-1}

P-annual payments

S-the care price

S^*-the market value after 7-years

i=1+0.04=1.04i=1+0.04=1.04

P=12,0001.0475,000)1.0411.0471=1,366.27P=12,000*1.04^7-5,000)*\frac{1.04-1}{1.04^7-1}=1,366.27

D=PS100%D=\frac{P}{S}*100\%

D-Depreciation rate

D=1,366.2712,000100%=11.39%D=\frac{1,366.27}{12,000}*100\%=11.39\%


b) 1,366.277=9563.891,366.27*7=9563.89

c) The inflation rate is 4%



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