Note 4: Depreciation Depreciation occurs over time as the value of a commodity or object decreases. Example, the value of a new car. Diminishing Value.

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Presentation transcript:

Note 4: Depreciation Depreciation occurs over time as the value of a commodity or object decreases. Example, the value of a new car. Diminishing Value Depreciation The value of the article reduces each year by the same percentage of the previous year’s value A = value after n time periods C = original purchase price r = depreciation rate (negative) n = number of time periods

Example: A car is bought for $40 000 Example: A car is bought for $40 000. Find its value after 4 years if it depreciates 30% each year diminishing value method C = $40,000 r = 30 n = 4 Value = $9604 N = 4 I% = -30 PV = -40000 PMT = 0 FV = P/Y = 1 C/Y = 1 Graphics Calculator Compound Interest NB: Interest is negative

Page 479 Exercise 15D