Depreciation

Assume that you recently applied for a student loan to go to graduate school. As part of the application process, your bank requested a list of your assets. Aside from an extensive CD collection, your only other asset is a pickup truck. You purchased the truck six years ago for $15,000. Its current fair value is approximately $5,000.

a. What factors caused your pickup truck to decline $10,000 in value?

b. Assume that the bank is willing to lend you money for graduate school. Even with the loan, however, you still need to raise an additional $5,000. Do you think that the bank will lend you $5,000 more for graduate school if you agree to use your truck as collateral? Explain.

c. Assume that the truck has been used solely in a delivery service business that you operate while in college. Would your balance sheet necessarily show $10,000 in accumulated depreciation related to the truck? Explain.