Final answer:
The market value of a company vehicle originally costing $54,000, with a six-year life and $6,000 salvage value, after three years of straight-line depreciation would be $30,000. However, other factors like condition and market demand influence the actual market value when selling the vehicle. Marvin should consider all factors, not just price, when comparing two similar used cars.
Step-by-step explanation:
The market value of a company vehicle after a certain period can be determined through methods of depreciation such as straight-line depreciation. If the original cost of the vehicle is $54,000 with a salvage value of $6,000 and an expected life of six years, we can calculate the annual depreciation expense as follows:
Annual Depreciation = (Cost - Salvage Value) / Useful Life
Annual Depreciation = ($54,000 - $6,000) / 6 years
Annual Depreciation = $48,000 / 6
Annual Depreciation = $8,000 per year
After three years, the accumulated depreciation on the vehicle would be $8,000 times 3, which equals $24,000. To find the book value after three years, we subtract the accumulated depreciation from the original cost:
Book Value after 3 years = Original Cost - Accumulated Depreciation
Book Value after 3 years = $54,000 - $24,000
Book Value after 3 years = $30,000
However, the market value could be different from the book value and depends on factors such as the condition of the vehicle, market demand, and comparable sales. If Marvin is considering two used cars that look similar in mileage, exterior, and age—but one costs $4,000 while the other costs $4,600—Marvin should not only look at the price but also investigate other factors like vehicle history, maintenance records, and potential additional features that may justify the higher cost.