Grade 12 Mathematics - KZN

Teacher Support Document - 2024

IEB/November 2022

---

Problem:

You start a business and buy a delivery truck for R450,000.

1. If the inflation rate is 6% per annum, how much will a new delivery truck cost in five years' time?

2. If you calculate depreciation at 20% per annum using the reducing-balance method, what will the value of your delivery truck be in five years' time?

3. You set up a sinking fund for the next 5 years so that you can trade in your delivery truck and buy a new one by financing the difference with the sinking fund. The bank offers an interest rate of 9% per annum compounded monthly. How much should you put away at the end of each month so that you have enough to finance the difference between the new vehicle and the trade-in value of your delivery truck at the end of 5 years? The last payment into the sinking fund is made at the end of the 5 years.



Answer :

Certainly! Let's go through the problem step-by-step.

### Part 1: Future Cost of the New Delivery Truck in Five Years

1. Initial Cost: The delivery truck initially costs R450,000.
2. Annual Inflation Rate: The inflation rate is 6% per year.
3. Time Period: The time period is 5 years.

To find the future cost of the truck, we use the formula for compound interest:
[tex]\[ \text{Future Cost} = \text{Initial Cost} \times (1 + \text{Inflation Rate})^{\text{Time Period}} \][/tex]

Substituting the values:
[tex]\[ \text{Future Cost} = 450,000 \times (1 + 0.06)^{5} \][/tex]

Upon calculation:
[tex]\[ \text{Future Cost} \approx R602,201.51 \][/tex]

### Part 2: Depreciated Value of the Truck in Five Years

1. Depreciation Rate: The truck depreciates at 20% per annum.
2. Initial Cost: The initial cost remains R450,000.
3. Time Period: The time period is 5 years.

Depreciation is calculated using the reducing-balance method:
[tex]\[ \text{Depreciated Value} = \text{Initial Cost} \times (1 - \text{Depreciation Rate})^{\text{Time Period}} \][/tex]

Substituting the values:
[tex]\[ \text{Depreciated Value} = 450,000 \times (1 - 0.20)^{5} \][/tex]

Upon calculation:
[tex]\[ \text{Depreciated Value} \approx R147,456.00 \][/tex]

### Part 3: Difference to be Financed

Now, we need to find the difference between the future cost of the new truck and the depreciated value of the old truck:

[tex]\[ \text{Difference} = \text{Future Cost} - \text{Depreciated Value} \][/tex]

Substituting the values:
[tex]\[ \text{Difference} = 602,201.51 - 147,456.00 \][/tex]

Upon calculation:
[tex]\[ \text{Difference} \approx R454,745.51 \][/tex]

### Part 4: Monthly Payment for the Sinking Fund

1. Bank Interest Rate: The bank offers an interest rate of 9% per annum compounded monthly.
2. Monthly Interest Rate: The monthly interest rate is [tex]\( \frac{0.09}{12} \)[/tex].
3. Number of Months: The time period is 5 years, which is equivalent to [tex]\( 5 \times 12 = 60 \)[/tex] months.
4. Difference to be Financed: The difference, as calculated, is R454,745.51.

To find the monthly payments needed for the sinking fund, we use the sinking fund formula for compound interest:
[tex]\[ \text{Monthly Payment} = \frac{\text{Difference} \times \text{Monthly Interest Rate}}{(1 + \text{Monthly Interest Rate})^{\text{Number of Months}} - 1} \][/tex]

Substituting the values:
[tex]\[ \text{Monthly Payment} = \frac{454,745.51 \times \frac{0.09}{12}}{(1 + \frac{0.09}{12})^{60} - 1} \][/tex]

Upon calculation:
[tex]\[ \text{Monthly Payment} \approx R6,029.18 \][/tex]

### Final Summary

1. Future Cost of the New Truck: R602,201.51
2. Depreciated Value of Your Truck in Five Years: R147,456.00
3. Difference to be Financed: R454,745.51
4. Monthly Payment for the Sinking Fund: R6,029.18

These results answer the questions provided in a clear and detailed manner.