Could I have help with a Business Math Question?

Question

An asset purchased on January 4 for $128,000 will last 6 years and have a salvage value of $8,000. Using straight line deprecaition, determine the book value at the end of the four years.

Answer 1

first you want to find the annual depreciation amount by taking

annual depreciation = (cost - salvage value) / useful life = (128,000 - 8,000) / 6 = $20,000

meaning that at the end of 4 years the book value would be

128,000 - 4(20,000)

=128,000 - 80,000

=$48,000

Answer 2

Hi Kelleigh;

This line has two points...

point of purchase...(0 years, $128,000)

point of salvage...(6 years, $8,000)

The x-axis is age of asset.

The y-axis is value of asset.

The equation we need is...

y=mx+b

m is the slope.

b is the y intercept, the value of y when x=0.

y=mx+128,000

Slope is the change-of-y divided by the change-of-x...

(128,000-8,000)/(0-6)

(120,000)/(-6)

-20,000

y=(-20,000)x+128,000

Let's establish the value of y when x=4...

y=[(-20,000)(4)]+128,000

y=-80,000+128,000

y=48,000

In 4 years, the asset will be worth $48,000.