Depreciation Methods
The word "depreciation" is defined as an accounting method wherein the cost of tangible assets is spread over its useful life and it usually denotes how much of the assets value has been used up. The depreciation is usually considered as an operating expense. The main reason behind depreciation includes wear and tear of the assets, obsolescence etc.
Depreciation Accounting
In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.
Question and my answer is below. Can you help me determine what I have done incorrectly? I believe it may be with the PMT line. I selected 0 because it doesn't say that her payments will be reinvested.
investment you made in a friend’s business. She will pay you $22,809 at the end of this year, $45,618 at the end of next year, and $68,427 at the end of the year after that (three years from today). The interest rate is 11.5% per year.
- What is the PV of your windfall?
- Financial Calculator:
- N = 1 year
- I/Y = 11.5% *Note: Only place 11.5 press I/Y; no division or equal sign like mortgage
- FV = 22,809
- PMT = 0 *Note: Payment here is any additional deposits. It says she pays you, not reinvest)
- CPT PV = 20,456.50
- b. What is the FV of your windfall in three years?
- Financial Calculator:
- N = 3 year
- I/Y = 11.5% *Note: Only place 11.5 press I/Y; no division or equal sign like mortgage
- PV = 68,427
- PMT = 0 *Note: Payment here is any additional deposits. It says she pays you, not reinvest)
- CPT FV = 94,853.23
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