Round your answer TO THE DOLLAR.

Question

You purchase a $987 computer, with an annual depreciation rate of 20%. What's the value of your computer after 5 years? Round your answer TO THE DOLLAR. Since this is money, type a dollar sign in front of the amount. For example: $227

Answer 1

20% of 987 is 197 leaving at year one value of 790

20% of 790 is 158 leaving at year two value of 632

20% of 632 is 126 leaving at year three value of 506

20% of 506 is 101 leaving at year four value of 405

20% of 405 is 81 leaving at year five value of 324

After 5 years depreciation at 20% per year, leaves $324 worth

Or use the interest rate formula

A=P(1+ r)^t where P=987, r = -20%=-0.2 and t=5 A = value after 5 years at 20'% depreciation

A=987(1-.2)⁵ = 987(.8)⁵ = 987(.32768) = $324

Answer 2

To make life easy, I would just use the straight line depreciation method. Let's assume the salvage value of a heavily used computer is virtually zero after five years. Then, the computer loses 1/5 of its original value each year, and after 5 years it is worth zero dollars to your company. Then you can either keep using it for free, replace it and get a much better computer for a much lower price, or both.