
Compound Interest
The compuond interest formula can be adapted to allow for depreciated value calculations. Establish an actual situation where the depreciated value of a commodity is so calculated and hence show that the depreciated value may be less than the tradein (market value) or scrap value of such commodity. Justify your solution.
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Again, Wikipedia has the goods: http://en.wikipedia.org/wiki/Depreciation
The basic idea behind "Decliningbalance" depreciation is that an asset loses a fixed percentage of its value each year. For example, suppose that your car costs 10,000 and you reckon that it loses 10% of its value each year. The value of the scrap metal in it is 1,000. After n years the depreciated value of your car is 10000.(10.10)^n and for a certain value of n this will be less than 1000: 0.9^n = 0.1 so n = log(0.1)/log(0.9). After that many years, then, the depreciated value of your car is less than its scrap value.