Question

A construction company buys a bulldozer for $26,000. The company expects the useful life of the machine to be 12 years, at which time its value will have depreciated to $6000. The company uses the declining balances method for depreciation, so the annual depreciation rate r (in decimal form) is given by the formula r=1−(S/C)^1/n . In the formula, n is the useful life of the item (in years), S is the salvage value (in dollars), and C is the original cost (in dollars). What annual depreciation rate (in percent form) did the company use? Round your answer to the nearest tenth.

Answer 1

11.5%

Explanation:

Put the given numbers in the formula and do the arithmetic.

r = 1 - (6000/26000)^(1/12) = 1 -(3/13)^(1/12) ≈ 1 -0.88498 ≈ 11.5%

The company used a depreciation rate of 11.5%.