Question

Part of the income that a machine generates is put into a sinking fund to replace...

Part of the income that a machine generates is put into a sinking fund to replace the machine when it wears out. If ​$2,000 is deposited annually at 8​% ​interest, how many years must the machine be kept before a new machine costing ​$55,000 can be​ purchased?

Homework Answers

Answer #1

Solution :-

Amount Required = $55,000

Annual Deposit = $2,000

Rate of annual Interest = 8%

Now as per data given ,

$55,000 = $2,000 * FVAF ( 8% , n )

27.5 = [ ( 1 + 0.08)n - 1 ] / 0.08

(1.08)n - 1 = 2.20

(1.08)n = 3.20

Take log Both sides

n Log ( 1.08 ) = Log ( 3.20 )

n = 0.50515 / 0.033424

n = 15.114 Years

Therefore  the machine must be kept before a new machine costing ​$55,000 can be ​purchased = 15.114 Years

If there is any doubt please ask in comments

Thank you please rate

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
□ A Company has decided to set up a sinking fund to replace an asset after...
□ A Company has decided to set up a sinking fund to replace an asset after 5 years. The value of the fund after 5 years must be Tk. 1,00,000 and the fund is expected to earn interest at the rate of 7% per annum. i) What must be the annual payment into the fund if the payment make at the end of each year?
A corporation creates a sinking fund in order to have $610,000 to replace some machinery in...
A corporation creates a sinking fund in order to have $610,000 to replace some machinery in 11 years. How much should be placed in this account at the end of each quarter if the annual interest rate is 4.9% compounded quarterly? (Round your answers to the nearest cent.) $10544.14   How much interest would they earn over the life of the account? $   146057.84 Determine the value of the fund after 2, 4, and 6 years. 2 years $  88059.78 4 years $  185128.62...
A corporation creates a sinking fund in order to have $760,000 to replace some machinery in...
A corporation creates a sinking fund in order to have $760,000 to replace some machinery in 8 years. How much should be placed in this account at the end of each month if the annual interest rate is 3.6% compounded monthly? (Round your answers to the nearest cent.) $ How much interest would they earn over the life of the account? Determine the value of the fund after 2, 4, and 6 years.    $ How much interest was earned...
An old machine was purchased 3 years ago at a cost of ?50,000. It was estimated...
An old machine was purchased 3 years ago at a cost of ?50,000. It was estimated to have a useful life of 8 years, with a salvage value of ?5,000. It is now going to be replaced by a new machine costing ?70,000 and ?30,000 trade-in will be allowed for the old machine. Determine the sunk cost if depreciation has been computed by the (a) straight line method, (b) sinking fund method at 16% and (c) SOYD method.
Vandalay Industries is considering the purchase of a new machine for the production of latex. Machine...
Vandalay Industries is considering the purchase of a new machine for the production of latex. Machine A costs $2,170,000 and will last for 8 years. Variable costs are 40 percent of sales, and fixed costs are $165,000 per year. Machine B costs $4,370,000 and will last for 12 years. Variable costs for this machine are 32 percent of sales and fixed costs are $100,000 per year. The sales for each machine will be $8.74 million per year. The required return...
Vandalay Industries is considering the purchase of a new machine for the production of latex. Machine...
Vandalay Industries is considering the purchase of a new machine for the production of latex. Machine A costs $1,950,000 and will last for 6 years. Variable costs are 38 percent of sales, and fixed costs are $169,000 per year. Machine B costs $4,720,000 and will last for 8 years. Variable costs for this machine are 32 percent of sales and fixed costs are $122,000 per year. The sales for each machine will be $9.44 million per year. The required return...
Canal Company is contemplating the purchase of a new leather sewing machine to replace the existing...
Canal Company is contemplating the purchase of a new leather sewing machine to replace the existing machine. The existing machine was purchased four years ago at an installed cost of $115,000; it was being depreciated under MACRS using a 5-year recovery period. The existing machine is expected to have a useful life of 5 more years. The new machine costs $203,000 and requires $8,000 in installation costs; it has a five-year useable life and would be depreciated under MACRS using...
The ABD company is considering the purchase of a new machine to replace an out of...
The ABD company is considering the purchase of a new machine to replace an out of date machine that has a book value of $18000 and can be sold today for $2,000. The old machine is being depreciated on a straightline basis over 4 more years to a book value of $2000 at the end of the fourth year. The old machine generates annual revenues of $105000 and annual expenses of $75000. This machine requires a fixed investment of $5000...
A manufacturer needs a new plastic injection mold machine for a new type of part they...
A manufacturer needs a new plastic injection mold machine for a new type of part they never made before. They can pick a versatile machine that would enable them to make a variety of parts or they can pick a basic machine that can make the parts they need now. Regardless, they must choose the machine that gives them the highest equivalent uniform annual worth (EUAW). The versatile machine costs $240,000 and will increase the annual profit by $90,000. It...
TIME VALUE OF MONEY Assume you put $5,000 into an investment fund today that will pay...
TIME VALUE OF MONEY Assume you put $5,000 into an investment fund today that will pay 4% compounded annually for 10 years. What will the fund be worth in 10 years? How much of this is interest?   2. It is the beginning of 20Y1 and it’s time to renew your security alarm service! The alarm company offers two plans for three years of coverage. Under the first plan, $1,000 annual payments are due at the end of 20Y1, 20Y2, and...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT