An annuity represents a uniform series of payments at regular intervals carrying interest. The ordinary annuity formula is applied in computing the__________________?
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Answer: B. Depreciation by sinking fund method
Explanation
An annuity represents a uniform series of periodic payments earning compound interest over time. The sinking fund depreciation method accumulates asset replacement capital through uniform annual deposits. Mathematical formulas for ordinary annuities form the exact foundation of sinking fund depreciation calculations. Sinking funds require regular cash deposits into interest-bearing accounts to replace aging plant equipment eventually. Annuity mathematics evaluates the future value of periodic savings combined with compound interest earnings. Engineering economics applies annuity principles to manage long-term asset retirement and replacement obligations.
Plant accountants establish sinking funds to ensure adequate capital is available for future equipment replacement. Understanding annuity calculations helps industrial planners manage long-term debt repayment schedules effectively. Depreciation funding methods protect corporate balance sheets from unexpected capital replacement expenditures. Option A manufacturing cost calculations involve direct materials, labor, and overhead rather than annuities. Option C discrete compound interest calculates growth on single lump-sum investments rather than annuities. Option D cash ratio measures immediate liquidity by comparing cash assets against current liabilities.
- Subject
- Engineering
- Category
- Chemical Engineering
- Topic
- —
- Difficulty
- medium
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