1.1 1.2 13 14 A mine buys mining machinery that costs R3.6 million. It depreciates at a rate of 12.5% [a on a reducing the balance. The cost to replace the machinery is expected to escalate at a rate of 7.5% p.a. A sinking fund earning 9% p.a compounded monthly, is set up to pay for new machinery in 6 years' time. Find, at the time of the purchase of the machinery: The book value of the old machinery The expected cost of the new machinery The value of the sinking fund needed in order to replace the machinery. The monthly payments that were to be made into the sinking fund. Payments resume one month after the current machinery was purchased and will continue until the new machinery is bought.