A multimeter priced at P400 depreciates in value by 10% annually due to obsolescence. What will be its market value after 5 years ?
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Answer: C. P 236.20
Explanation
Declining balance depreciation reduces the asset value by ten percent annually over five consecutive years. Applying this percentage sequentially to the remaining book value yields a final market value of two hundred thirty six point twenty. Mathematical compounding of the depreciation factor confirms two hundred thirty six point twenty is accurate. Declining balance depreciation applies a constant percentage rate to the remaining book value of the asset. The formula multiplies the initial cost by one minus the depreciation rate raised to the power of years. Obsolescence and physical wear typically cause electronic testing equipment to lose value rapidly over time.
Option A underestimates the remaining asset value by applying an incorrect depreciation calculation formula. Option B represents a different mathematical result caused by misapplying the annual reduction percentage. Option D overstates the remaining market value due to an error in the compounding exponent.
- Subject
- Engineering
- Category
- Civil Engineering
- Topic
- —
- Difficulty
- medium
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