Time Value of Money

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Time Value of Money Mr.

Rashed Al Karim
PhD (Fellow) (UUM)
MBA (University of Wales; UK)

Interest

Definition: When A borrows money from B, then A has to pay certain amount to B for the
use of the money.

(i) The amount paid by A is called Interest.


(ii) The amount borrowed by A from B is called Principal.
(iii) The sum of the interest and principal is usually called the Total Amount.

Simple Interest: When interest is payable on the principal only, then it is called Simple
Interest.

Compound Interest: When interest is calculated on the amount in the previous year, then it
is called Compound Interest.

Formula for Calculation of Simple Interest:

Let P = Principal i.e., the initial sum of money invested

i = rate of Interest

n = number of years

A = Total Amount i.e., Principal plus Interest accrued

∴ The Simple Interest obtained after ‘n’ years will be = Pni ............(1)

And Total Amount, A = P + Pni = P (1 + ni) ............(2)

Formula for Calculation of Compound Interest: The Total Amount (A) of Principal (P) at
the end of ‘n’ periods is, A = P (1 + i)n ...............(3)

Therefore, the Compound Interest, I = Total Amount (A) – Principal (P)

= A – P = P (1 + i)n – P

∴ I = P [(1 + i)n – 1]..............(4)

Therefore, if the interest is compounded yearly, then A = P (1 + i)n


𝑖
If the interest is compounded half yearly, then A = P (1 + 2)2n and

𝑖
If the interest is compounded quarterly, then A = P (1 + 4)4n

𝑖
If the interest is compounded monthly, then A = P (1 + 12)12n

In General, A = P (1+i/m)mn
Page | 1
Time Value of Money Mr. Rashed Al Karim
PhD (Fellow) (UUM)
MBA (University of Wales; UK)

Example-1: Find the compound interest on Tk. 1000 for 4 years at 5% per annum. What will
be the simple interest in the above case?
5
Solution: Here, P = 1000, i = 5% = = 0.05, n = 4 years
100

∴ the compound interest, I = P [(1 + i)n – 1] = 1000[(1 + 0.05)4 - 1]

= 1000[(1.05)4 – 1]

= 1000 [1.21550625 – 1]

= 1000 × 0.21550625

= Tk. 215.5 [Ans]

And the simple interest = Pni = 1000 × 4 × 0.05 = Tk. 200 [Ans]

Example-2: Find the number of years at which money will triple itself at 4% per annum?

Solution: According to the question, we can write, A = 3P


4
Here, i = 4% = = 0.04, ∴ n = ?
100

We know that, A = P (1 + i)n

So that, P (1 + i)n = 3P

⇒ (1 + i)n = 3 [diving both side by P]

⇒ log (1 + i)n = log 3 [taking log on both side]

⇒ log (1 + 0.04)n = log 3

⇒ n log (1.04) = log 3

log 3 0.47712
⇒n= = = 28 years [Ans]
log(1.04) 0.01703

Example-3: How long it takes for a sum of money to increase 25% at compound interest of
5% per year.

Solution: Let the amount to be deposit = Tk. 100

25
∴ Accumulated value = 100 + (100 ×25%) = 100 + (100 ×100) = Tk. 125

Page | 2
Time Value of Money Mr. Rashed Al Karim
PhD (Fellow) (UUM)
MBA (University of Wales; UK)

Here, A = 125, P = 100, i = 5% = 0.05, n = ?

We know that, A = P (1 + i)n

⇒ 125 = 100 (1 + 0.05)n

⇒ 125 = 100 (1.05)n

125
⇒ (1.05)n = 100 = 1.25

⇒ log (1.05)n = log 1.25 [taking log on both side]

⇒ n log (1.05) = log 1.25

log(1.25)
∴ n=
log(1.05)

0.0969
= = 4.59 years [Ans]
0.0211

Example-4: What is the present value of Rs. 10,000 due in 2 years at 8% per annum
compound interest, according as the interest is paid (a) yearly (b) half yearly.

8
Solution: Here, A = 10,000; n = 2 years; i = 8% = = 0.08; P = ?
100

(a) We know that, A = P (1 + i)n


𝐴 10000 10000 10000
∴ P= n = 2 = 2 = = Rs. 8573.4 (app) [Ans]
(1+i) (1+0.08) (1.08) 1.1664

(b) Again, we know that for half yearly compound interest


𝑖
A = P (1 + 2)2n
0.08 2.2
⇒ 10000 = P (1 + )
2

⇒ 10000 = P (1 + 0.04)4
⇒ 1000 = P (1.04)4
10000
⇒P=
(1.04)4

10000
⇒P = = Rs.8554 (app) [Ans]
1.169

Page | 3
Time Value of Money Mr. Rashed Al Karim
PhD (Fellow) (UUM)
MBA (University of Wales; UK)

Example-5: Mr. Rahim has invested Tk.30,000 for 4 years at 12% rate of interest.
(i) What will be the compound interest and amount after 4 years if it is
compounding (a) Yearly; or (b) Monthly?
(ii) Find the number of years in which the sum will double itself at annual
compound interest.
(iii) What should be the annual compound interest rate to make the amount
Tk.60,000 after 4 years?
Solution: We are given, P = 30,000, n = 4 and i = 0.12
(i) (a) In the case of Yearly Compounding:
Compound interest after 4 years, I = P [(1+i)n -1]
= 30,000 [(1 + 0.12)4 - 1]
= 30,000 [(1.12)4 - 1]
= 30,000 × 0.5735 = Tk.17,205 [Ans]
Amount after 4 years, A = P (1+i)4
= 30,000 (1 + 0.12)4
= 30,000 × 1.5735
= Tk.47, 205 [Ans]

(b) In the case of Monthly Compounding: [then m = 12]


𝑖
Compound interest after 4 years, I = P [(1+12)12n -1]
0.12 12×4
=30,000[(1 + ) – 1]
12

= 30,000[1.6122 - 1]
= 30,000 × 0.6122 = Tk.18, 366 [Ans]

𝑖
Amount after 4 years, A = P (1+12)12n
0.12 12×4
= 30,000(1 + )
12

= 30,000 (1.01)48
= 30,000 × 1.6122
= Tk.48, 366 [Ans]

(ii) Let the sum will be Tk.(30,000 × 2) = Tk.60, 000 is n years.


So, P = 30,000, A = 60,000, i = .12 and n =?

Page | 4
Time Value of Money Mr. Rashed Al Karim
PhD (Fellow) (UUM)
MBA (University of Wales; UK)

Now, A = P (1+i)n
⇒ 60,000 = 30,000 (1 + 0.12)n
⇒ (1.12)n = 60,000/30,000
⇒ (1.12)n = 2
Taking logarithm both sides, we have
⇒ n log(1.12) = log2

log 1.12 0.3010


⇒n= = 0.0492 = 6.12 years [Ans]
𝑙𝑜𝑔2

(iii) We have, P = 30,000; A = 60,000; n = 4 and i =?


⸫ A = P (1+i)n
⇒ 60,000 = 30,000(1+i)4
60000
⇒(1+i)4 = 30000 = 2

Taking logarithm both sides, we have

⇒ log(1+i)4 = log2

⇒ 4log(1+i)= log2
𝑙𝑜𝑔2
⇒ log (1+i) = = 0.0753
4

⇒ 1 +i = Antilog (0.0753) = 1.1893

⇒ i = 1.1893 -1 = 0.1893 = 18.93% [Ans]

Exercises
1) A man took a loan of Tk. 10,000 from lender and after 10 years, repaid Tk. 17,000
with interest. What was the rate of simple interest he took the loan? [Ans: 7%]
2) Find in what time a sum of money triple itself at 5% per annum compound interest.
[Ans: 22.52 years]
3) In what time will a sum of Rs.1234 amount to Rs. 5678 at 8% per annum compound
interest, payable quarterly? [Ans: 19.27 years]
4) If compound rate of interest is 8%, then what will be the interest of Tk. 6200 for one
year and five months? [Ans: Tk. 713]
5) At what rate of interest compounded annually will a sum of money increase by 75%
in 10 years. [Ans: 5.8%]

Page | 5
Time Value of Money Mr. Rashed Al Karim
PhD (Fellow) (UUM)
MBA (University of Wales; UK)

6) What is the present value of Rs. 1000 due in 2 years at 5% per annum compound
interest, according as the interest is paid (a) yearly (b) half yearly.
[Ans: Rs.906.90; Rs. 906.10]
7) Mr. Mehta borrowed Rs. 20,000 from a money lender but he could not repay any
amount in a period of 4 years. Accordingly, the money lender demands now Rs.
26,500 from him. Find out the compound interest rate per annum? [Ans: 7.3%]
8) Mr. Asif has invested Tk.1,00,000 for 5 years at 10% rate of interest.
a. What will be the simple interest and amount after 5 years?
b. What will be the compound interest and amount after 5 years if interest is paid
(i) Monthly, or (ii) Quarterly?
c. What should be annual compound interest rate to make the amount Tk.2,00,000
after 5 years?
9) At what rate of interest an amount of investment will be thrice as much as at the end of
6 years?
10) How many years will it take at 12% interest compounding annually for Tk.6000 to
grow to Tk.11, 000?

Page | 6
Time Value of Money Mr. Rashed Al Karim
PhD (Fellow) (UUM)
MBA (University of Wales; UK)

Annuity

Definition: A series of uniform payments is called an Annuity. In other words, an annuity is


a series of payments of a fixed amount at regular interval (i.e., six months or a quarter or a
month).

(i) Annuity due: When the payment of an annuity is at the beginning of each period, it is said
to be an annuity due.

(ii) Immediate annuity: When the payment is at the end of each period, the annuity is
termed as immediate annuity

The Present Value of an Annuity:

The present value of an annuity is the sum of the present values of its instalments. In
calculating the present value of an annuity it is always customary to reckon compound
interest.

Let A be the annuity, PV is the present value, i is the rate of interest per year and n the
number of years to continue, and then the present value of an immediate annuity is
calculated by the following formula:
𝑨 𝟏
PV = [1 – ]
𝒊 (𝟏+𝒊)𝒏

On the other hand the present value of an annuity due is calculated by the following
formula:
𝑨 𝟏
PV = 𝒊 (𝟏 + 𝒊) [1 – (𝟏+𝒊)𝒏 ]

Example-1: Find the present value of an annuity of Rs.1000 p.a. for 14 years following
compound interest at 5% p.a.
5
Solution: Here, A = 1000; i = 5% = = 0.05; n = 14; PV = ?
100

𝐴 1
We know that, PV = [1 – ]
𝑖 (1+𝑖)𝑛

1000 1
⇒ PV = [1 – ]
0.05 (1+0.05)14

1
⇒ PV = 20000[1 – ]
(1.05)14

Page | 7
Time Value of Money Mr. Rashed Al Karim
PhD (Fellow) (UUM)
MBA (University of Wales; UK)

1
⇒ PV = 20000 [1 – ]
1.98

⇒ PV = 20000 [1 – 0.505]

⇒ PV = 20000 [0.495] = Rs. 9900 (app) [Ans]


Example-2: An investment will yield Tk.10,000 per annum for 8 years. If finance can be
obtained at 7% per annum and the investment costs Tk.50,000. Is it worth undertaking?
7
Solution: Here, A = 10,000; i = 7% = = 0.07; n = 8; PV = ?
100

𝐴 1
We know that, PV = [1 – ]
𝑖 (1+𝑖)𝑛

10000 1
⇒ PV = [1 – ]
0.07 (1+0.07)8

1
⇒ PV = 142857[1 – ]
(1.07)8

1
⇒ PV = 142857[1 – ]
1.718

⇒ PV = 142857[1 – 0.5820]

⇒ PV = 142857[0.418]

⇒ PV = Tk. 59714.226 (app)

Since, the investment costs Tk. 50,000 and the present value of this annuity is Tk. 59714.226.
Hence the investment should be made. [Ans]

Example-3: A person borrows Tk. 20,000 on the understanding that he will pay it back in 10
equal annual instalments at the end of each year. If money is worth 4% per annum; then find
the value of an instalment.
Solution: Here, PV = 20,000; n = 10; i = 4% = 0.04; A = ?
𝐴 1
We know that, PV = [1 – ]
𝑖 (1+𝑖)𝑛

𝐴 1
⇒ 20,000 = [1 – ]
0.04 (1+0.04)10

𝐴 1
⇒ 20,000 = [1 – ]
0.04 (1.04)10

𝐴 1
⇒ 20,000 = [1 – ]
0.04 1.48

Page | 8
Time Value of Money Mr. Rashed Al Karim
PhD (Fellow) (UUM)
MBA (University of Wales; UK)

𝐴 1
⇒ 20,000 = [1 – ]
0.04 1.48
𝐴
⇒ 20,000 = [1 – 0.676]
0.04
𝐴
⇒ 20,000 = [0.324]
0.04

⇒ 0.324A = 20,000 × 0.04 = 800


800
∴A= = 2469 (app)
0.324

So, the value of each instalment is Tk. 2469 [Ans]

Example-4: A man took a loan of Tk 500 and paid it within two years by six equal
instalments. If the 15% interest is charged on unpaid amount, what was its instalment price?

Solution: As there are six instalments within 2 years, so yearly there will be 3 instalments.

Therefore, PV = 500 ; n = 2 yrs; i = 15% = 0.04; A = ?


𝐴 1
We know that, PV = [1 – 𝑖 ]
𝑖/3 (1+ )3𝑛
3

𝐴 1
⇒ 500 = [1 – 0.15 3×2 ]
0.15/3 (1+ )
3

⇒A = 98.51 𝑇𝑘 (𝐴𝑛𝑠)
𝐴 1
Another method: PV = [1 – ]
𝑖 (1+𝑖)𝑛

Here, PV=500; i = 15% = 0.15/3; n = 6


𝐴 1
So, 500 = [1 – 0.15 6 ]
0.15/3 (1+ )
3

⇒ A = 98.43 tk.

Example-5: Mr. Karim can purchase a machine by paying Tk.40, 000 in cash at now. He can
also purchase the machine by 8 equals’ yearly instalments to be paid at the beginning of each
year. If the interest rate is 12%, what should be amount of each instalment? Solution

Solution: Here, PV = 40,000; n = 8; i = 12% and A =?


𝐴 1
We know that, PV = 𝑖 (1 + 𝑖) [1 – (1+𝑖)𝑛]

Page | 9
Time Value of Money Mr. Rashed Al Karim
PhD (Fellow) (UUM)
MBA (University of Wales; UK)

𝐴 1
⇒40,000 = 0.12 (1 + 0.12) [1 – (1+0.12)8]

𝐴 1
⇒40,000 = 0.12 (1.12) [1 – (1.12)8 ]

𝐴 1
⇒40,000 = 0.12 (1.12) [1 – 2.4760]

⇒ 40,000 = A (9.3333) (1-0.4039)

⇒ 40,000 = A (9.3333) (0.5961)

⇒ 40,000 = A (5.5636)

⇒ A = (40000/5.5636) = 7189.59 Tk. [Ans]


Example-6: Find the present value of an annuity due of Rs 500 per quarter for 8 years and 9
months at 6% compounded quarterly.

Solution: Here, rate of interest, r =1.5% per interest period =0.015

Number of interest periods, n = 4×8+3 =35

Each instalment, A=Rs 500

We know that, Present value of annuity due,


𝐴 1
PV = PV = 𝑖 (1 + 𝑖) [1 – (1+𝑖)𝑛]
500 1
⇒PV = 0.015 (1 + 0.015) [1 – (1+0.015)35]

500 1
⇒PV = 0.015 (1.015) [1 – (1.015)35]

500 1
⇒PV = 0.015 (1.015) [1 – (1.015)35] = 13692.35 Rs [Ans]

Page | 10
Time Value of Money Mr. Rashed Al Karim
PhD (Fellow) (UUM)
MBA (University of Wales; UK)

The Future Value of an Annuity:


Let A be the annuity, FV is the future value, i is the rate of interest per year and n the number
of years to continue, and then the future value of an immediate annuity is calculated by the
𝑨
following formula: FV = 𝒊 [(𝟏 + 𝒊)𝒏 –𝟏]

On the other hand, the future value of an annuity due is calculated by the following formula:
𝑨
FV = 𝒊 (𝟏 + 𝒊) [(𝟏 + 𝒊)𝒏 –𝟏]

Example-7: Mr. Mamun wishes to accumulated Tk. 30,000 by 4 years from now in order to
purchase a new coloured TV. How much does he need to invest at the end of the next 4 years
at 12% rate of interest compounded annually?

Solution: Here, FV = 30,000; i = 12% = 0.12; n = 4 years; A = ?

𝐴
We know that, FV = 𝑖 [(1 + 𝑖)𝑛 –1]

𝐴
⇒ 30000 = 0.12 [(1 + 0.12)4 –1]

𝐴
⇒ 30000 = 0.12 [(1.12)4 –1]

3600
⇒ A = [(1.12)4 –1] = 6277 Tk (app).

Example-8: A man retires at the age of 57 years and gets a pension of Tk.1,000 in each
month and is payable 6 months interval. What will be the accumulated amount if he does not
withdraw any sum for next 15 years and the interest rate is 4% p.a.

Solution: Here, A = 1000 ×6 = 60000; i = 4% = 0.04; n = 15 years; FV = ?

𝐴 𝑖
We know that, FV = 𝑖/2 [(1 + 2)2𝑛 –1] [For Half Yearly]

60000
= [(1 + 0.02)2×15 –1]
0.02

= 243408 Tk.

Page | 11
Time Value of Money Mr. Rashed Al Karim
PhD (Fellow) (UUM)
MBA (University of Wales; UK)

Example-9: Mr. Zahad wants to purchase a machine after 10 years when it will cost
Tk.6,00,000. From now, he wants to save money for the machine and plans to deposit money
into bank in 10 equal instalments; the first deposit is to be made immediately. Calculate the
amount of each instalment reckoning compound interest at 10% p.a.

Solution: FV = 6,00,000; i = 0.10; n = 10 and A = ?

𝐴
We know that, FV = 𝑖 (1 + 𝑖) [(1 + 𝑖)𝑛 –1]

𝐴
⇒ 6,00,000 = 0.1 (1 + 0.1) [(1 + 0.1)10 –1]

𝐴
⇒ 6,00,000 = 0.1 (1.1) [(1.1)10 –1]

⇒ 6,00,000 = 𝐴 × 11[2.5937 –1]

⇒ 6,00,000 = 𝐴 × 11[1.5937]
600000
⇒ A = 17.5307 = 34,225.67 Tk.

Hence Mr. Zahad has to deposit Tk.34,225.67 in each instalment at the beginning of
each year.

Exercises
1) What sum should be paid for an annuity of Rs.2400 p.a. for 20 years at 4.5%
compound interest per annum? [Ans: 31,203.32]
2) A man borrows Tk. 6000 at 6% interest and promises to pay off the loan in 20 annual
payments beginning at the end of the first year. What is the annual payment
necessary? [Ans: 523 (app)]
3) Mr. Y buys a motor car by Tk. 10, 00000. The condition is after giving Tk. 100000
rest of the amount will need to pay by 15 annual instalments at 10% interest. What
will be the first instalment? [Ans: Tk. 118326]
4) An individual borrows Tk. 11500 from the bank to pay for the construction of a
swimming pool and agrees to repay the bank in 60 monthly instalments at 1.5%
interest per month. What will be the monthly payment? How much interest will be
pay? [Ans: Tk. 292; Tk. 6020]

Page | 12
Time Value of Money Mr. Rashed Al Karim
PhD (Fellow) (UUM)
MBA (University of Wales; UK)

5) Mr. Rahim buys a house worth Tk.3,50,000. The contract is that Rahim will pay
Tk.1,00,000 immediately and the balance in 15 annual equal instalments with 10%
per annum compound interest. How much he has to pay annually?
6) A man took a loan of Tk 400 and paid it 4 equal monthly instalments. If the 12%
interest is charged on unpaid amount, what was the monthly instalment? [Ans: 102.5]
7) What will be the amount after 15 years if Tk. 2000 paid at the end of each year at 4 %
compound interest? What will be the amount if the same amount paid at the beginning
of the each year? [Ans: 40,047 Tk. & 41,648.88 Tk.]
8) A man retires at the age of 55 years from active service and his employer gives him
pension of Tk.1,500 a year paid in half yearly instalments for the rest of his life.
Assuming his expectation of remaining life to be 15 years and that interest is 12% p.a.
payable half yearly? What single sum is equivalent to his pension? [Ans: 59,293.63]

Depreciation
After studying this lesson, you should be able to:

 Explain the nature of depreciation and depreciated value;


 Calculate the amount of depreciation under the different methods of depreciation.

Nature of Depreciation

In case of depreciation, the principal value is diminished every year by some amount, and in
the subsequent period the diminished value becomes the principal value. In case of uniform
decrease or depreciation, ‘i’ is to be substituted by ‘–i’ in the formula of future value. In that
case depreciated value and accumulated depreciation is calculated by using the following
formula:
Depreciated value, A = P (1-i)n [Under reducing balance method]

Accumulated depreciation, A = P [1- (1+i)n]

Where, A = Depreciated Value


P = Cost price of the asset
i = Rate of depreciation
n = Number of periods the asset has been depreciated.

For calculation of depreciated value and accumulated depreciation the following examples
are highlighted here.

Page | 13
Time Value of Money Mr. Rashed Al Karim
PhD (Fellow) (UUM)
MBA (University of Wales; UK)

Example-1: A machine, the life of which is estimated to 10 years and costs Tk. 10,000.
Calculate the scrap value at the end of its depreciation on the reducing instalment system
being charged at 10% p.a.

Soln: Here, P = 10,000; i = 10%: n =10 years; A = ?

We know, A = P (1-i)n

Or, A = 10000 (1 – 0.1)10

Or, A = 3486.78 Tk (Ans)

Example-2: A machine depreciates @ 10% of its value at the beginning of the year. The
machine was purchased for Tk.5,810 and the scrap value realized when sold was Tk.2,250.
Find out the number of years during which the machine was in use.

Soln: Here, A = 2,250; P = 5,810; i = 10%; n =?

We know, A = P (1-i)n

Or, 2,250 = 5,810 (1-i)n


2250
Or, (1 - 0.10)n =
5810

Or, (0.90)n = 0.38726

Taking logarithm both sides

Or, n log (0.90) = log (0.38726)

Or, n(–0.04576) = – 0.412


−.0 412
Or, n = = 9 yrs. [Ans]
–0.04576

Example-3: The life of A machine is estimated to be 10 years and the machine costs
Tk.10,000. Calculate the scarp value at the end of its life; depreciation on the reducing
balance method being charged @ 10% per annum.

Solution: Here, P = 10,000; n = 10; i = 10%; A = ?

We know that, A = P (1-i)n

⇒ A = 10,000 (1 − i)10

⇒ A = 10,000 (0.90)10

Page | 14
Time Value of Money Mr. Rashed Al Karim
PhD (Fellow) (UUM)
MBA (University of Wales; UK)

⇒ logA = log10,000 + 10 log 0.90

⇒ logA = 4 + 10(-0.0458)

⇒ logA = 4 - 0.458

⇒ logA = 3.542

⇒ A = antilog(3.542) = 3483.37

Hence the scarp value is Tk.3,483.37.

Example-4: A machine has been purchased in 1999 at a cost of Tk.3,00,000. The machine is
depreciated @8% per annum on reducing balance method. Compute-

i. What would be the depreciated value of the machine at the end of 2005?
ii. What amount should be charged as depreciation of the machine for 2006?
iii. Would it be profitable to sale the machine for Tk.1,20,000 at the end of 2007?
iv. When the depreciated value of the machine will be Tk.1,02,550?
Solution:

(i) We are given, P = 3,00,000; i = 0.08; n =7; A=?


A = P (1-i)n
= 3,00,000 ( 1- 0.08 )7
= (3,00,000 × 0.5578)
= Tk.1,67,340.
(ii) The depreciated value of the machine at the end of 2006, i.e. n =8, would be,
A = P (1-i)n
= 3,00,000 (1 − 0.08)8

= (3,00,000 × 0.5132)

= Tk.1,53,960

Therefore depreciation for 2006 would be: (1,67,340 – 1,53,960) = Tk.1,41,630

(iii) The depreciated value of the machine at the end of 2007, i.e. n =8, would be,
A = P (1-i)n
= 3,00,000 (1 – 0.08)9
= 3,00,000 × 0.4721
= Tk.1,41,630

Hence, it would not be profitable to sale the machine for Tk.1,20,000 at the end of 2007.

Page | 15
Time Value of Money Mr. Rashed Al Karim
PhD (Fellow) (UUM)
MBA (University of Wales; UK)

(iv) Let after n years the depreciated value of the machine would be Tk.1,02,550.

Now, A = P (1-i)n

Or, 1,02,550 = 3,00,000 (1 – 0.08)n

Or, (0.92)n = 1,02,000/3,00,000 = 0.3418

Taking logarithm both sides we have

Or, n log 0.92 = log 0.3418

log 0.3418 −0.4662


Or, n = = = 12.88 years.
log0.92 −0.0362

Therefore, after 12.88 years the depreciated value of the machine would be Tk.1,02,550.

 Exercise
1) A machine is depreciated in such a way that the value of the machine at the end of any
year is 90% of the value at the beginning of the year. The cost of the machine was Tk.
12000 and it was sold eventually as waste metal for 200 taka. Find out the no. of years
during which the machine in use. [Ans. 38.82 years]
2) A computer is valued at Tk. 45000 and it is decided to reduce the estimated value at
the end of each year by 12% of the value at the beginning of that year. When will the
value be Tk. 30,000? [Ans. 3.17 years]
3) The cost of a factory building is Tk. 3,00,000. If the rate of depreciation of building is
3% and the present value is Tk. 60,000. How many years ago the machine was
installed? [Ans. 52.84 years]
4) The yearly depreciation of a machine is 10% of its value at the beginning of the year.
The original cost was Tk. 10,000 and the scrap value is Tk. 3750. Find the effective
life of machine. [Ans. 9.3 years]
5) A machine is valued at Tk. 49074 and it is decided to reduce the estimated value at
the end of each year by 15% of the value at the beginning of that year. When will the
value be Tk. 20,000? [Ans. 5.52 years]
6) The value of a machine depreciates @ 10% p.a. If its present value is Tk.81000, what
will be its worth after 2 years? What was the value of the machine 2 years ago?

Page | 16
Time Value of Money Mr. Rashed Al Karim
PhD (Fellow) (UUM)
MBA (University of Wales; UK)

7) A machine depreciates @ 12% p.a of its value at the beginning of a year. The
machine was purchased for Tk.58,100 and the scrape value released when sold was
Tk.10,000 Find out the number of years during which the machine was in use?
8) A machine has been purchased in 1995 at a cost of Tk.1,00,000. The machine is
depreciated @12% p.a. on reducing balance method. (i). What would be depreciated
value of the machine at the end of 2005? (ii). What amount should be charged as
depreciation of the machine for 2001? (iii). Would it be profitable to sale the machine
for Tk.5,00,000 at the end of 2002? (iv). When the depreciated value of the machine
will be Tk.4,20,550?

Page | 17

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