Financial Maths, SMB-020

A company purchases a machine for $50 000. The two methods of depreciation being considered are the declining-balance method and the straight-line method.

For the declining-balance method, the salvage value of the machine after years is given by the formula

where is the salvage value and is the initial value of the asset.

1. What is the annual rate of depreciation used in this formula?  (1 mark)
   

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2. Calculate the salvage value of the machine after 3 years, based on the given formula.  (2 marks)
   

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