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Question
The value of a machine, purchased two years ago, depreciates at the annual rate of 10%. If its present value is Rs.97,200, find:
- Its value after 2 years.
- Its value when it was purchased.
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Solution
(i) Present value of machine(P) = Rs.97,200
Depreciation rate = 10%
∴ Value of machine after 2 years = P`( 1 - r/100)^n`
= 97,200`( 1 - 10/100 )^2`
= 97,200`(9/10)^2`
= Rs. 78732.
(ii) Present value of machine(A) = Rs.97,200
Depreciation rate = 10% and time = 2 years
To calculate the cost 2 years ago
∴ A = P`( 1 - r/100 )^n`
⇒ 97,200 = P`( 1 - 10/100 )^2`
⇒ 97,200 = P`( 9/10 )^2`
⇒ `97200 = P xx 9/10 xx 9/10`
⇒ P = `(97200 xx 10 xx 10)/(9 xx 9)`
⇒ P = Rs. 1,20,000
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