Episode 19 — Finance Growth and Decay

Sinking Funds

Learners will be able to:

• Calculate the replacement cost of a new machine in 10 years using the compound interest formula. • Determine the scrap value of the current machine in 10 years time by applying the compound depreciation formula. • Subtract the scrap value from the replacement cost to find the value needed in the sinking fund for purchasing a new machine. • Use the future value formula for an annuity to calculate the monthly payment into the sinking fund required for replacing the old machine. • Solve for x in the future value of an annuity equation to determine the exact amount of the monthly payment.