A machine depreciates by 20% p.a. from a current value of Rs. 1,50,000. At what price should it be sold after two years to yield a Rs. 24,000 profit?
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Answer: B. Rs. 1,20,000
Explanation
Depreciating fifteen hundred thousand at twenty percent p.a. over two years reduces its value to ninety six thousand. Adding the target profit of twenty four thousand to the depreciated value gives one twenty thousand. The required selling price to achieve the specified profit margin is exactly one hundred twenty thousand. Depreciation reduces the book value of machinery over time based on an annual percentage rate. Selling price equals the depreciated asset value plus the desired monetary profit margin. Successive annual depreciation is calculated by applying the percentage rate to the remaining book value.
Manufacturing businesses calculate asset depreciation schedules for tax reporting and equipment replacement. Corporate finance departments determine salvage values and resale pricing for used industrial machinery. Accounting auditors verify asset valuations and gain on sale calculations on financial statements. Option a underestimates the resale price by failing to add the full desired profit margin. Option c overestimates the selling price due to an incorrect depreciation calculation step. Option d results from a minor arithmetic error when combining the residual value and profit.
- Subject
- Mathematics
- Category
- Mathematics
- Topic
- —
- Difficulty
- medium
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