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Following successful completion of this lesson, students will be able to:
The above objectives correspond with the following Alabama Course of Study Objectives: CCRS 3Use formulas or equations of functions to calculate outcomes of exponential growth or decay.. |
Introduction
Depreciation
Depreciation formulas are mathematical formulas that tell you how much your asset or assets will be worth in a certain number of years.
The depreciation formula is an exponential decay formula because the value of your asset is decreasing as the it gets older.
a represents the initial amount (original price of item)
b represents the depreciation factor (0 < b < 1)
x represents the amount of time
y represents the ending amount
The depreciation factor is b. The decay factor is 1 - b.
Example
Suppose you want to purchase a used truck. The truck is 5 years old. The original price of the truck was $26,000. The person selling the truck wants $18,000 for the truck. You do research and determine that the truck has a depreciation factor of 10% per year. Based on that information, is the truck worth $18,000?
The depreciation factor is how much the truck decreases in value per year. In this example, the depreciation factor is 10%.
Using the exponential decay formula, we can determine the value of the truck.
y = 26,000(1 - 0.1)5
y = ?
Based on the answer above, is the truck worth $18,000?
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