Question

Annual depreciation equals the difference between the original cost of an item and its remaining value, divided by its estimated life in years. Determine the annual depreciation of a new car that costs 25,000 dollar has an estimated life of 10 years, and has a remaining value of 2000 dollar.

Short answer

Answer: The annual depreciation of the new car is 2,300 dollar.

Step-by-step solution

Identify the given variables

The original cost of the car is 25,000 dollar, its estimated life is 10 years, and its remaining value is 2,000 dollar.

Use the annual depreciation formula

We will plug in the values into the annual depreciation formula: (original cost - remaining value) / estimated life. Annual Depreciation = (25,000 - 2,000) / 10

Calculate the annual depreciation

Now, let's calculate the annual depreciation: Annual Depreciation = (23,000) / 10 = 2,300 dollar The annual depreciation of the new car is 2,300 dollar.