BTGModeratorVI wrote: ↑

Tue Dec 15, 2020 7:01 am

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.

Answer: E
Source: official guide

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