Luke Galen Purchased an Automobile with a List Price of $4,387

question 12

Multiple Choice

Luke Galen purchased an automobile with a list price of $4,387. He signed a contract requiring a $1,000 down payment and $1,000 payments at the beginning of each subsequent year for four years. Compute the annual implicit (effective) rate of interest on this financing loan.

• A)5%
• B)6%
• C)7%
• D)8%

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Definitions:

Residual Value

The projected amount an asset is expected to yield when sold at the conclusion of its useful life.

Double-Declining-Balance

An accelerated method of depreciation where an asset’s book value is reduced at double the rate of its straight-line depreciation.

Units-Of-Activity

A depreciation method that allocates the cost of an asset over its useful life based on its usage or activity levels, rather than time.

Depreciation Expense

Depreciation expense is the allocated portion of the cost of a tangible asset that is expensed over its useful life, reflecting wear and tear, obsolescence, or loss of value.