Test Index

Time Value of Money

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Question : 59 of 99

Marks: +1, -0

A machine costs Rs .1,00,000. The depreciation rate is

10 \%

per annum. The scrap value of the machine at the end of 5 years is

Rs. 49490
Rs. 59049
Rs. 61029
Rs. 51049

Solution:

Concept:

Depreciation reduces the asset's value each year by a fixed percentage of its current value (reducing balance method).

Explanation:

Value after

n

years = Cost

\times (1 - \text{rate})^n

Here, cost = Rs.

1,00{,}000

, rate =

10\% = 0.1

,

n = 5

So value =

1{,}00{,}000 \times (0.9)^5

(0.9)^2 = 0.81

,

(0.9)^4 = 0.81^2 = 0.6561

, then

(0.9)^5 = 0.6561 \times 0.9 = 0.59049

Value =

1{,}00{,}000 \times 0.59049 = \text{Rs. } 59{,}049

Answer:

Rs. 59049

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