A sinking fund is established to replace a machine that will be obsolete 5 years from now. The machine will cost R140.00 to replace. The fund earns 10% per annum. What monthly instalment must be paid into the sinking fund?

Guest May 19, 2017

#1**0 **

1)

50,000 x 8% =4,000 simple interest for 1 year.

4,000 x 12 =48,000 simple interest for 12 years.

2)

Use this formula to calculate the monthly payment for the sinking fund:

FV=P{[1 + R]^N - 1/ R}

140 = P {[1 + 0.10/12]^(5*12) - 1 / 0.10/12}

140 = P {[1.00833333]^60 - 1 / 0.00833333}

140 = P x 77.43707217........

P =140 / 77.43707217....

**P =1.81 R - ****Monthly**** deposit that must be paid in the sinking fund**.

P.S. I have taken your interest rate of 10% as **compounded monthly.**

Guest May 19, 2017