Why does a courier company pay a fixed amount into a sinking fund every month?
ATo pay the salaries this month
BTo settle an overdue tax bill
CTo afford a replacement vehicle
DTo reduce the price of its fuel
Answer & Solution
Correct answer: C. To afford a replacement vehicle
1. Delivery vehicles wear out and lose value as they age and are used.
2. The company will have to buy a new one at a future price that is higher than today's price.
3. Regular deposits into a sinking fund, earning compound interest, build up that future amount.
4. The trade in value of the old vehicle is subtracted from the price of the new one to set the target.
5. Ordinary running costs such as salaries are paid from income, not from a sinking fund.
_Source: Siyavula Mathematics Grade 12 (Everything Maths, CC BY 4.0), Chapter 3: Finance_