Word problem

Question

An automobile purchased for $39,000 is worth $2,500 after 5 years. Assuming the car'S value depreciated steadily from year to year, what was it worth at the end of the third year?

Answer 1

Given: $39,000 cost; $2,500 salvage value, 5 year useful life.

Question: Value at END of the third year.

 

Step 1: Subtract salvage value from cost $39,000 - $2,500 = $36,500

Step 2: Determine steady depreciation AKA straight-line depreciation by dividing $36,500 by useful life of 5 years = $7,300 = annual depreciation

Step 3: Subtract ($7,300 times 3= $21,900) from $36,500 = $14,600 Value at END of third year.