A graphic designer purchases a computer system valued at $45 000.

The salvage value of the system after a number of years can be calculated using either of the two methods of depreciation shown in the table.

\begin{array} {|l|l|} \hline \rule{0pt}{2.5ex} \text{Method of depreciation} \rule[-1ex]{0pt}{0pt} & \text{Rate of depreciation} \\ \hline \rule{0pt}{2.5ex} \text{Straight-line method} \rule[-1ex]{0pt}{0pt} & \text{\$4000 per annum} \\ \hline \rule{0pt}{2.5ex} \text{Declining balance method} \rule[-1ex]{0pt}{0pt} & \text{10% per annum} \\ \hline \end{array}

Under which method of depreciation would the salvage value of the equipment be lower at the end of 4 years? Justify your answer with appropriate mathematical calculations.   (3 marks)

A business buys a delivery van for $60 000. The two depreciation methods under consideration are the declining-balance method and the straight-line method.

1. For the declining-balance method, the salvage value of the van after `n` years is given by the formula
2. `S=V_(0)xx(0.75)^(n),`
3. where `S` is the salvage value and `V_(0)` is the initial cost 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 van after 2 years, based on the given formula.   (1 mark)
      

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2. Using the straight-line method, the van depreciates by 13.75% of its purchase price each year.
3. After how many full years will the value of the van be equal to or less than the value found in part (a.ii)?   (2 marks)
   

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