Problema Solution
Alex is trying to sell a go-kart that he bought 4 years ago for $3,400.00. He hopes the value of the go-kart would not depreciate more than 5% for each six-month period that he owned it. How much does he hope to sell the go-kart for?
Answer provided by our tutors
The salvage value under a declining balance can be calculated using the formula:
S = V0(1 - r)
where S is the salvage value,
V0 = $3,400.00 is the purchase price,
r = 0.05is the percentage depreciation per period expressed as a decimal
n = 2*4 = 8 is the number of periods (the depreciation happens each 6 months)
S = 3400(1 - 0.05)^8
S = $2,255.63
click here to see the step by step calculation:
after 4 years he is hoping to sell the go-kart for $2,255.63.