Question

A machine costs Rs. 97,000 and its effective life is estimated to be 12 years. If scrap realises Rs. 2,000 only, what amount should be retained out of profits at the end of each year to accumulate at compound interest of 5% per annum in order to buy a new machine after 12 years? (use ${1.05}^{12}=1.769)$

Answer 1

Cost of machine = Rs . 97,000
Value of scrap = Rs. 2,000
$\therefore$ Required money = Rs. 95,000
Now, $M=Rs.95,000,n=12,r=5\%=0.05$
Using the formula
$M=\frac{A}{r}\left[\right(1+r{)}^n-1]$
$95,000=\frac{A}{0.05}\left[\right(1+0.05{)}^{12}-1]$
$\Rightarrow A=\frac{0.05\times 95000}{(1.05{)}^{12}-1}=\frac{0.05\times 95000}{0.769}=6176.85$