If the book value of a certain piece of equipment was $5,000 exactly

Question

If the book value of a certain piece of equipment was $5,000 exactly 5 years ago, what is its present book value?

(1) From the time the piece of equipment was purchased, its book value decreased by 10 percent of its purchase price each year of its life.
(2) The present book value of another piece of equipment is $2,000.

ID: 700120
DS20413

BrentGMATPrepNow · Accepted Answer

Given : The book value of a certain piece of equipment was $5,000 exactly 5 years ago

Target question :    What is its present book value?

Statement 1 : From the time the piece of equipment was purchased, its book value decreased by 10 percent of its PURCHASE PRICE each year of its life.  
The key concept here is that  the book value need not be equal to be purchase price . 
For example, it could be the case that the original book value was $5,000, but the PURCHASE PRICE was $1.
So, even though the book value (5 years ago) was $5000,   we have no idea what the actual PURCHASE PRICE was  . 
Since the book value decreases by 10% of the PURCHASE PRICE,  there's no way to calculate the present book value 
Statement 1 is NOT SUFFICIENT

Statement 2 : The present book value of another piece of equipment is $2,000 
The book value of a  different  piece of equipment will certainly not help us answer the  target question 
Statement 2 is NOT SUFFICIENT

Statements 1 and 2 combined    
Since statement 2 is totally irrelevant, the combined statements for also NOT SUFFICIENT

Answer: E

Cheers,
Brent

yashikaaggarwal · Answer

IMO E

Statement 1: From the time the piece of equipment was purchased, its book value decreased by 10 percent of its purchase price each year of its life.
We only know 5000 was the value of that equipment piece, nothing mentioned regarding it being its price value or not. And since depreciation is done on purchase price. We can't put depreciation on the book as per the information given.
(Insufficient)

Statement 2: The present book value of another piece of equipment is $2,000.
No information regarding whether they both are similar or depreciation put forward is same. (Insufficient)

1&2 together: the depreciation on purchase price and the present book value of other equipment is of no use in determining book value of equipment now.

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Kinshook · Answer

Asked: If the book value of a certain piece of equipment was $5,000 exactly 5 years ago, what is its present book value?

(1) From the time the piece of equipment was purchased, its book value decreased by 10 percent of its purchase price each year of its life.
Present book value = $5000 * (.9)^5
SUFFICIENT

(2) The present book value of another piece of equipment is $2,000.
This is irrelevant information.
NOT SUFFICIENT

IMO A

yashikaaggarwal · Answer

Don't you think, depreciation is calculated upon purchase price and nothing is mentioned regarding purchase price in statement 1. It can be the depreciated price too

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Kinshook · Answer

Hi  yashikaaggarwal   Bunuel

The portion highlighted in red color makes the question confusing.
If it is not intended, then it may please be omitted.

Kinshook · Answer

Asked: If the book value of a certain piece of equipment was $5,000 exactly 5 years ago, what is its present book value?

(1) From the time the piece of equipment was purchased, its book value decreased by 10 percent of its purchase price each year of its life.
Since purchase price is not mentioned.
NOT SUFFICIENT

(2) The present book value of another piece of equipment is $2,000.
This is irrelevant information.
NOT SUFFICIENT

(1) + (2) 
(1) From the time the piece of equipment was purchased, its book value decreased by 10 percent of its purchase price each year of its life.
Since purchase price is not mentioned.
(2) The present book value of another piece of equipment is $2,000.
This is irrelevant information.
NOT SUFFICIENT

IMO E

apati10 · Answer

Substitute statement A with Book value. Would the answer be A then?

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Basshead · Answer

(1) We're told the book value decreased by 10% of its purchase price. We know the price of the equipment was $5,000 exactly 5 years ago. However, we don't know the purchase price. Was it $10,000? $50,000? We don't know. Therefore we can't determine the present book value. INSUFFICIENT.

(2) Irrelevant. INSUFFICIENT.

(1&2) Combined, we can't conclude the present book value. INSUFFICIENT.

Answer is E.

Gemmie · Answer

Statement 1  gives us the depreciation rate but not the purchase price. => insufficient

Statement 2  is irrelevant to the problem. => insufficient

Combined , both statements together are still insufficient to determine the present book value.

Answer is E

purplelemonsoda · Answer

OFFICIAL ANSWER
Algebra Applied problems
Determine the present book value of a piece of equipment, of which the book value exactly 5 years ago was $5,000.

(1) Given that the book value decreased 10% of the purchase price each year, it is not possible to determine the present book value because the purchase price is unknown as is the number of years ago the equipment was purchased. Consider the following chart, where P represents the purchase price.

Years after purchase Depreciation Book value
0 0 P
1 0.1P 0.9P
2 0.1P 0.8P
3 0.1P 0.7P
4 0.1P 0.6P
5 0.1P 0.5P
6 0.1P 0.4P
7 0.1P 0.3P
8 0.1P 0.2P
9 0.1P 0.1P
10 0.1P 0
11 0 0
12 0 0
13 0 0
For example, if “5 years ago” was 6 years after purchase and the book value was $5,000, then $5,000 = 0.4P and P = $12,500. In this case, the present book value (i.e., 5 years hence) is $0. On the other hand, if “5 years ago” was 2 years after purchase and the book value was $5,000, then $5,000 = 0.8P and P = $6,250. In this case, the present book value (i.e., 5 years hence) is 0.3($6,250) = $1,875; NOT sufficient.

(2) Given that the present book value of another piece of equipment is $2,000 gives no information about the certain piece of equipment under consideration; NOT sufficient.

Taking (1) and (2) together gives no more information than (1) alone since (2) gives information about another piece of equipment, not the piece under consideration.

The correct answer is E; both statements together are not sufficient.

shwetakoshija · Answer

Given:  The book value of the equipment 5 years ago was $5,000.

To Find:  The present book value of the equipment.

Statement 1:  From the time of purchase, the book value decreased by 10% of its purchase price each year.
 
 Let the original purchase price be P. 
 Each year, the value decreases by 10% of P (not the remaining value).
 
 After T years, Value = P ×  (0.9)^T .  
 
 We only know the book value 5 years ago ($5,000), but we do not know the original purchase price P nor do we know how many years after the original purchase was the 5-year-ago period. 
 Without knowing P, we cannot determine the current value.

Statement 1 alone is  insufficient .

Statement 2:  The present book value of another piece of equipment is $2,000.
 
 This statement gives no information about the equipment in question. 
 It is completely irrelevant.

Statement 2 alone is  insufficient .

Statements 1 and 2 Combined: 
 
 Statement 2 does not provide any useful information. 
 Statement 1 remains insufficient since we do not know the original purchase price.

Even together, the statements are  insufficient .

Correct Answer: E

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If the book value of a certain piece of equipment was $5,000 exactly

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