Your retirement account has a current balance of $25,000. What interest rate would need to be earned in order to accumulate a total of $2,000,000 in 40 years, by adding $12,000 annually?
I'm answering this question in a way of using a financial calculator. In the problem above you will be solving for the rate. Remember that certain numbers have to be positive and some have to be negative. I think of them in cash-flow terms. Cash inflows are positive and cash outflows are negative. The first part of the question says, "your retirement account has a current balance of $25,000" When entering this value into you calculator you'll enter it in negative because you've deposited that amount into your retirement account out of your cash account (you could think of it as a checking account). This is a cash outflow. Your goal in the 40 years is to accumulate $2,000,000. This is a cash inflow because that is the amount you want your retirement account to be so you can use it for cash. Therefore, the $2,000,000 is a cash inflow. You'll be adding $12,000 annually to meet your goal. Since this amount is going out of your regular cash account it is a cash outflow and therefore negative. This is how you should enter the values in your calculator: PV = -25,000 FV = 2,000,000 N = 40 PMT = -12,000 You'll then hit "CPT" then "i" i = 5.8% (rounded) - This is your answer.
Calculate slope for y=2x+4
Remember the slope formula is (y2 - y1)/(x2 - x1) aka Rise/Run. You'll want to put in some dummy numbers for X. I like to do 1 and 0 because it gets an easy change. (Where this is a straight line the slope is constant) Plug in 1 for x: y=2(1)+4 y=2+4 y=6 coordinates: (1,6) Plug in 0 for x: y=2(0)+4 y=4 coordinates: (0,4) y2=1 x2=6 y1=0 x1=4 Truly it doesn't matter who is (x1,y1) and (x2,y2) as long as you keep the correct x's matched with the corresponding y's. (1 - 0)/(6 - 4) 1/2 =0.5 slope = 0.5
How do you calculate depreciation using the double declining balance method?
Hopefully you're familiar withe the straight-line method. The main differences between the straight-line method (SL) and double-declining balance (DDB) is that the DDB method is double the straight-line method and you do not take salvage value into account. 1. Find out the number of years the project will be depreciating for. 2. Next you'll have to convert the years to depreciate into a percent. You'll do this by dividing 100 by the number of years to depreciate. 3. Double your percentage. 4. Multiply the Book Value (remember there is no salvage value) by the depreciation rate. This gives you your depreciation expense. 5. Subtract the depreciation expense from the depreciable base. This gives you your new base. *6. Repeat steps 1-5 until the base is 0 OR salvage value. *REMEMBER: you cannot depreciate beyond the salvage value so the last year all you do is: BASE - Salvage = Depreciation Expense. You'll see this on year 5 of the example. EXAMPLE: You purchases a piece of equipment for $5,000. You expect the equipment to have a $500 salvage life. You plan to use the equipment for 5 years. What is the depreciation expense each year for the next 5 years? 1. 5 years 2. 100/5 = 20% 3. 20% X 2 = 40% 4. Years Base Rate Depreciation Expense 1 $5,000 X 40% = $2,000 5. $5,000 - $2,000 = $3,000 (depreciable base for year 2) 6. Repeat (completed chart) Years Base Rate Depreciation Expense 1 $5,000 X 40% = $2,000 2 3,000 X 40% = 1,200 3 1,800 X 40% = 720 4 1,080 X 40% = 432 5 648 148** 6 500 **In year 5 if you multiply 648 by 40% you get 259.2. 648 - 259.2 = 388.8 which is less than the salvage value. By doing 648 - 500 = 148 you get the final depreciation expense.