A building fetches a rent of 10,000 annually. After repairing, it will last for 2 years. If the rate of interest on capital is 5% and the co-efficient of the annual sinking fund is 0.05, then estimate the capitalized value of the building after 2 years.
Capitalized value = Net annual income × Year’s Purchase
Year’s Purchase = 1/(i + s)
i = rate of interest = 5% = 0.05
s = sinking fund factor = 0.05
Year’s Purchase = 1/0.1 = 10
Net annual income = 10000
Capitalised value = 10000 × 10 = Rs. 1,00,000