Sarah bought a 7-year old car for $10,500.When the car was new,it sold for $21,000.Therefore,the depreciation rate is 9.4%.

Question

Quizplus · Accepted Answer

The calculation for depreciation rate is:
Depreciation Rate = ((Cost of asset - Residual value)/Cost of asset)) x 100%

Here, 
Cost of asset = $21,000
Residual value = $0 (given)
Depreciation Rate = ((21,000-0)/21,000) x 100% = 100%

Since the car is 7 years old, the annual depreciation rate would be:
Annual Depreciation Rate = Depreciation Rate / Useful life
Useful life of a car is generally considered to be 10 years. 
Annual Depreciation Rate = 100%/10 = 10%

Thus, the depreciation rate is not 9.4%, but is actually 10%.

Sarah Bought a 7-Year Old Car for $10,500