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Math Help - Depreciation Problem Help

  1. #1
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    Exclamation Depreciation Problem Help

    This is the question
    A company buys a computer for $125,000 and houses it in a specially constructed suite at a cost of $20,000.
    a) If the computer depreciates at 30%(reducing balance) and the suite appreciates at 6%(compound),what is the book value of suite and computer after 5 years?
    b) Taking computer and suites together and using the reducing balance method, what is the overall depreciation rate?

    I managed to get the answer to a) which is suite = -$6000, computer = $30,012.50

    I do not know how to solve b)
    Can someone please help me thanks
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  2. #2
    MHF Contributor Unknown008's Avatar
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    Quote Originally Posted by misslady View Post
    This is the question
    A company buys a computer for $125,000 and houses it in a specially constructed suite at a cost of $20,000.
    a) If the computer depreciates at 30%(reducing balance) and the suite appreciates at 6%(compound),what is the book value of suite and computer after 5 years?
    b) Taking computer and suites together and using the reducing balance method, what is the overall depreciation rate?

    I managed to get the answer to a) which is suite = -$6000, computer = $30,012.50

    I do not know how to solve b)
    Can someone please help me thanks
    I'm not getting your answers

    a) For the computer:

    After year one, the value drops to:

    125000 - (125000*0.30) = 87500

    After year two, we get 61250

    and so on, until year 5, (year 3 = 42875, year 4 = 30012.5)

    30012.5 - (30012.5*0.3) = 21008.75

    Or use the imple formula,

    A_n = P(1-R)^n

    A_5 = 125000(1-0.3)^5 = 21008.75

    Same thing for the suite.

    A_5 = 20000(1+0.06)^5 = 26764.51

    As for (b), I'm not so sure, just so you know. I'm using this very same formula, but grouping the costs altogether.

    A_5 = P(1 - R)^n

    (21008.75 + 26764.51) = (125000+20000)(1 - R)^5

    And I get

    R = 0.199

    R =~ 20%
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  3. #3
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    Quote Originally Posted by misslady View Post
    I do not know how to solve b)
    Can someone please help me thanks
    What rules/methods did your teacher give you?
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  4. #4
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    Quote Originally Posted by Unknown008 View Post
    I'm not getting your answers

    a) For the computer:

    After year one, the value drops to:

    125000 - (125000*0.30) = 87500

    After year two, we get 61250

    and so on, until year 5, (year 3 = 42875, year 4 = 30012.5)

    30012.5 - (30012.5*0.3) = 21008.75

    Or use the imple formula,

    A_n = P(1-R)^n

    A_5 = 125000(1-0.3)^5 = 21008.75

    Same thing for the suite.

    A_5 = 20000(1+0.06)^5 = 26764.51

    As for (b), I'm not so sure, just so you know. I'm using this very same formula, but grouping the costs altogether.

    A_5 = P(1 - R)^n

    (21008.75 + 26764.51) = (125000+20000)(1 - R)^5

    And I get

    R = 0.199

    R =~ 20%
    Thank you so much
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