Subtopic: Cost analysis of implements and tractors
Question Statement:
Considering declining balance method, the constant rate of depreciation at which the value of the tractor will come down to 50% of its purchase price at the end of 4th year in per cent is _____________________(rounded off to 2 decimal places).
Official Answer Key:
15.80 to 16.00
Step-by-Step Solution & Explanation
Declining (diminishing) balance depreciation: Book value after n years, V = P(1−r)ⁿ, where r is the constant fractional depreciation rate. Given V/P = 0.50 at n=4: 0.50 = (1−r)⁴ ⇒ (1−r) = 0.50^(1/4) = 0.8409 ⇒ r = 1−0.8409 = 0.1591 = 15.91%. Within official range 15.80–16.00.
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