At Borneo Motors showroom, Michael is ready to drive his shiny new car off the dealer’s lot. He has saved carefully for the down payment and, with a 5-year car loan from a bank, now it’s his. Michael’s shoot-from-the-hip friend—his consultant in all things car-related, James, is with him as he takes the turn out of the lot. “Well,” James observes, “your car just went down in value.” “What do you mean?” Michael asks, a bit indignantly. “If you sold this car tomorrow to someone, it would go for far less than you just paid.” James asserts.

Not believing what he has just heard from James, Michael turns to you—his trusted friend with a business degree—to help him make sense of James’ assertion.

Answer rating: 100% (QA)

James is referring to the concept of depreciation which is the decrease in the va... View the full answer