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.

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.

Expert's answer

a) "S^*=(((((((S*i)-P)*i-P)*i-P)*i-P)*i-P)*i-P)*i-P"

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

"P=(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=1.04"

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

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

D-Depreciation rate

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

b) "1,366.27*7=9563.89"

c) The inflation rate is 4%

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