Question Bank • QB_EXP_FM_002 NAT • 2 Marks

Section 2: Farm Machinery

Farm Machinery

Subtopic: Cost analysis of implements and tractors

Question Statement:

A tractor was purchased for ₹8,00,000 with an expected useful life of 10 years and a salvage value of 10% of the initial purchase price. If annual interest rate is 10%, the annual interest cost on investment calculated using the straight-line average investment formula is ₹________ (in integer).

Answer Key:

44000

Step-by-Step Solution & Explanation

1. Initial cost $C = ₹8,00,000$. 2. Salvage value $S = 0.10 \times 8,00,000 = ₹80,000$. 3. Average investment $I_{avg} = \frac{C + S}{2} = \frac{8,00,000 + 80,000}{2} = ₹4,40,000$. 4. Annual interest cost at $i = 10\% = 0.10$: $\text{Interest} = I_{avg} \times i = 4,40,000 \times 0.10 = ₹44,000$.
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