The rate of depreciation is calculated by the following equation:
Dt =(1/n)(c-sv), (3-1)
where C=original cost of capitalized investment, D(=depreciation in year, t, SV=salvage value of capitalize investment, and N=number of years of depreciation.
This method can be illustrated by the following example, where it is assumed that the value of the equipment after 5 years is equal to $10,000, and this price is based on the value of the equipment at the sale after five years.
It is worth mentioning that salvage value is usually taken to equal zero.
Depreciation rate per year = (50000-10000)/5 = $8,000.
Table 3.2 Straight-line method