Mulungushi University

School of Natural and Applied Sciences

Business Mathematics(MSM 192)

2023/24 Academic Year, Semester Two

February 5, 2024

Tutorial Sheet 2

NOTE: Only students with attempted solutions will be allowed in a tutorial session

1. A machine has been purchased in 1999 at a cost of K300,000. The machine is depreciated at 8%
per annum on reducing balance method. Compute

(a) What would be the depreciated value of the machine at the end of 2005?
(b) What amount should be charged as depreciation of the machine for 2006?
(c) Would it be profitable to sale the machine for Tk.1,20,000 at the end of 2007?
(d) When the depreciated value of the machine will be K102,550?

2. A machine depreciates at 12% p.a of its value at the beginning of a year. The machine was
purchased for K58,100 and the scrape value released when sold was K10,000 Find out the number
of years during which the machine was in use?

3. A machine depreciates at 10% of its value at the beginning of the year. The machine was purchased
for K5,810 and the scrap value realized when sold was K2,250. Find out the number of years during
which the machine was in use.

4. An investment will yield K10,000 per annum for 8 years. If finance can be obtained at 7% per
annum and the investment costs K50,000, is it worth undertaking?

5. A man wishes to have K150,000 available in a bank account when his daughter’s first year college
expenses begin. How much must he deposit now at 12% compounded annually if the girl is to
start in college five years from now?

6. Bupe borrowed K10,000 to buy a refrigerator. She will amortize the loan by monthly payment
of K each over a period of 3 years. Find the monthly payment if interest is 12% compounding
monthly. Also find the total amount Bupe will pay.

7. A company must replace machinery every two years at a cost of K100, 000. It is decided to set
aside equal amounts at the beginning of each quarter. If interest is 5.75% per annum, calculate
the size of the quarterly deposits.
 8. A taxi service must replace cars every 5 years at a cost of k450000. At an 8% rate of interest,
calculate
(a) The size of the fund if k4000 is deposited at the beginning of each month
(b) The size of each quarterly payment necessary to meet this target
9. To provide for future education costs, a family considers various methods of saving. Assume saving
will continue for a period of 10 years at an interest rate of 7.5% per annum.
(a) a) Calculate the value of the fund at the end of 10 years when a single deposit of k2, 500 is
made annually.
(b) b) How much should be deposited each year if the final value of the fund is k42, 500?
10. A small business has a choice of investing K20, 000 in one of two projects. The revenue flows from
the two projects during the next 4 years are listed in the following table. If the interest rate is
11% compounded annually, which of these two projects would you advise the company to invest
in?
End of Year 1 2 3 4 Total
Project A 6,000 3,000 10,000 8,000 27,000
Project B 10,000 6,000 9,000 1,000 26,000
11. Bupe wishes to invest K1, 000, 000 in a new shoe factory that will generate his annual cash flows
of 300, 000 for 5 years. The shoe factory will then be scrapped. If the opportunity cost of capital
for this investment is 8%, calculate the net present value of this investment.
12. It is estimated that an investment in a new process will cause the following cash flow ( in Kwacha)

End year 0 1 2 3 4 5
Cash outflow 50000
Cash inflow 10000 15000 15000 15000 20000 20000

The firm wishes to earn at least 12% per annum on projects of this type. Calculate the Net
Present Value of the project and comment on the course of action to be taken.
13. A farmer plans to invest K300, 000 in a new high-eficiency tractor that will reduce his labor bill by
K100, 000 in years 1, 2, K75, 000 in years 3, 4, and 5, and K50, 000 in year 6. If the appropriate
discount rate is 7.5%, what is the NPV of this project?
14. A project has an initial investment of K2, 000, 000 and a present value of cash flows totalling
K4, 200, 000. What is the project’s NPV?
15. Mulungushi University is considering to engage in a project that will be profitable and a major
source of income. Project A and Project B are proposed with the following net cash flows in
(Kwacha).

Year 0 1 2 3 4 5
Project A -420,000 -5,000 122,000 130,000 148,000 150,000
Project B -95,000 -10,000 -120,000 200,000 110,000 -50,000
(a) Use the net present value criterion to decide which project is the most profitable if a discount
rate of 6% and 8% is used.
(b) Estimate the Internal Rate of Return(IRR) of each project. Which project would now be
considered more profitable ?

Bupe kolosa (Mr) 2