A machine is purchased for Rs. 625000. Its value depreciates at the rate of 8% per annum. What will be its value after 2 years?
Present value of machine, P = Rs.625000
Time, n = 2 years
Rate of depreciates, R = 8% per annum
Now,
Amount (A) = P (1 + R/100)n [Where, A = Amount with compound interest
P = Present value
R = Annual interest rate
n = Time in years]
∴ Value = P (1 - R/100)n [∵ Rate decreases]
= 625000 (1 - 8/100)2
= 625000 (1 - 2/25)2
= 625000 (23/25)2
= 625000 × 729/625
= 1000 × 529
= 529000
∴ Value of machine after 2 years will be Rs.529000.