financial maths section 5.2...
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Financial Maths Section 5.2 Solutions
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Financial Maths
Section 5.2
Depreciation
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must calculate year 1 first
At end of year 1
Value after 3 years
Value after 5 years
ii) Difference between depreciated value and cost of new machine in 4 years.
Extra money needed = Value difference Less savings
Extra investment = Present value of 65508.45 with discount rate of 4%
Assuming the 2nd Hand Value in 4 years time is not subject to inflation
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Formula for t
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Straight line
depreciation
Reducing balance depreciation
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From graphMethod 1
Method 2
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Because the function approaches a limit.
The value is always being reduced by 36%, but a positive number being multiplied by 0.64 is always > 0.
The reducing balance is more realistic because the AC System should still have a value in 5 years.