Business set up a sinking fund


A business installs a server for R500 000. The value of the server depreciates at 20% per annum according to the diminishing-balance method.

5.1 Calculate the scrap value of the server at the end of 6 years. (2)

5.2 The server needs to be replaced after 6 years. Calculate the cost of the new server

if the inflation rate is at 7% per annum. The older server will be traded in. (3)

5.3 On the day the server gets installed, the business sets up a sinking fund into which

equal monthly installments must be paid. Interest on this fund is 8% per annum compounded monthly. The first payment will be made immediately and the last payment will be made at the end of the 6 year period. Calculate the value of the

monthly instalment into the sinking fund. (4)

5.4 The business decides to rather pay a monthly instalment of R15 000 into the

sinking fund. After how many months will there be more than R1 000 000 in the

fund? (5)

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