Average Yearly DepreciationDate: 06/07/2002 at 12:49:09 From: Chris Subject: word problem on depreciation values I'm trying to figure out the model pricing on a Chevrolet Sport Utility Vechicle showing its depreciation rate in value per year. I've obtained the price history for the last years as follows: YEAR Kelly Blue Book Price History 1992 9,380 1993 10,430 1994 11,630 1995 12,960 1996 14,795 1997 16,715 1998 18,685 1999 20,840 2000 25,750 2001 28,710 2002 No listing yet The 2002 Suburban is currently selling for the retail price of $35,888. I tried subtracting each number from the largest number and then I divided by 11 (the number of years) to get an average of $1,757.36. When I tried to graph it to show a decrease instead it showed an increase. What's the formula to be able to find out the average decrease in value per year? I need help to point me in the right direction. Date: 06/07/2002 at 14:12:42 From: Doctor Ian Subject: Re: word problem on depreciation values Hi Chris, Instead of subtracting each number from the largest number, you need to subtract each one from the number that comes just before it. But it's not clear that average decrease, in absolute terms, is what you want. In the table below, 'price' is the price in a particular year; 'diff' is the price difference from the previous year; and 'pct' is the percentage drop in price from the previous year: year price diff pct 1992 9,380 1050 10.07% 1993 10,430 1200 10.32% 1994 11,630 1330 10.26% 1995 12,960 2015 13.46% 1996 14,975 1740 10.41% 1997 16,715 1970 10.54% 1998 18,685 2155 10.34% 1999 20,840 4910 19.07% 2000 25,750 2960 10.31% 2001 28,710 - - It looks like 10% per year is a pretty good rule of thumb for this model. Does this help? - Doctor Ian, The Math Forum http://mathforum.org/dr.math/ |
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