Question

PLLLLLLLLLLLLLLLEEEEEEEEEAAAAAAAASSSSSSSE HEEEEEEEEELP As soon as a new car that costs $25,000 is driven off the lot, it begins to depreciate at a rate of 24.9% annually. About how much money is the car worth after the second year?

Answer 1

The value of the car after two years is $14,100.025

Explanation:

Here, we want to calculate the value of a car after its second year, given the depreciation percentage.

To get the value of the car year after year at the fixed percentage level, what we do is to set up an exponential equation;

V = I(1-r)^t

where V is the present value

I is the initial value = $25,000

r is the rate = 24.9% = 24.9/100 = 0.249

t is the number of years = 2 in this case

So we substitute these values in the depreciation case and have;

V = 25000(1-0.249)^2

V = 25000(0.751)^2

V = $14,100.025