Depreciation, SMB-001 MC

A new air-conditioning unit was purchased for $5000 on 1 January 2017.

On 1 January of each year after 2017 its value is depreciated by 20% using the reducing balance method.

The value of the air conditioner will be below $1500 for the first time on 1 January

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`D`

Show Worked Solution

`r=20% = 0.2`

`text{Test the values of given options using:}\ \ S=V_0(1-r)^n`

`S \text{(Jan20)} = 5000(1-0.2)^3= 5000 xx 0.8^3= $2560`

`S \text{(Jan22)} = 5000 xx 0.8^5= $1638.40`

`S \text{(Jan23)} = 5000 xx 0.8^6= $1310.72`

`=> D`