A machine cost Rs 5,20,000 with an estimated life of 25 years a sinking find is created replace it by a model at 25% higher cost after 25 yrs with a scrap value realize of Rs 25,000 what amount should be set aside every year if the sinking find investment accumulate at 3.5%compound interest p.a.?
Correct Answer is 16,050
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Step-by-step explanation:
Effective cost of the machine is 98000–3000=95000.
We know that Future value of annuity (FV) = annuity × Compount Value factor of Annuity (CVAF)
That is FV=annuity×CVAF
(5%,12)
FV=annuity×(
r
(1+r)
n
−1
), where r=0.05,n=12
⇒95000=annuity×
0.05
(1+0.05)
12
−1
⇒95000=annuity×
0.05
0.795856
⇒95000=annuity×15.917
∴annuity=
15.917
95000
=5968
Therefore, Rs. 5,968 should be cut out of the profit at the end of each year to accumulate at compound rate of 5% per annum, so that a new machine can be purchased after 12 years.
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