Question:
A manufacturer reckons that the value of a machine, which costs him Rs 15625, will depreciate each year by 20%. Find the estimated value at the end of 5 years.
Solution:
Cost of machine = Rs 15625
Machine depreciates by 20% every year.
Therefore, its value after every year is $80 \%$ of the original cost i.e., $\frac{4}{5}$ of the original cost.
$\therefore$ Value at the end of 5 years $=15625 \times \underbrace{\frac{4}{5} \times \frac{4}{5} \times \ldots \times \frac{4}{5}}_{5 \text { times }}=5 \times 1024=5120$
Thus, the value of the machine at the end of 5 years is Rs 5120.