Question

The cost of a car, purchased 2 years ago, depreciates at the rate of 20% every year. If the present value of the car is 315600 find:

(i) value of car 2 years ago
(ii) value of cars after 3 years

Answer 1

The value of the car 2 years ago is $394,500. The value of the car after 3 years is $252,480.

Step-by-step explanation:

To find the value of the car 2 years ago, you need to calculate its depreciation.

Since the car depreciates at a rate of 20% every year, you can use the formula:

Value of car 2 years ago = Present value / (1 - depreciation rate)
= 315600 / (1 - 0.20)
= 315600 / 0.80
= 394500

To find the value of the car after 3 years, you can use the same formula:

Value of car after 3 years = Present value * (1 - depreciation rate)
= 315600 * (1 - 0.20)
= 252480