1. ## 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)

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)

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%

I do not know how to solve b)
What rules/methods did your teacher give you?

4. Originally Posted by Unknown008

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