Pittsburg Paper - A Method of Calculating Sinking-Funds, and a Table of Values for Ordinary Periods and Rates of Interest

In estimating the investment-value of a mining-property or plant, the value of which decreases with operation, it is often necessary to know the sum which must be set aside periodically from earnings either to renew the plant at the end of its life, or to return the capital involved when the earningpower of the investment has ceased. In such cases it is manifestly incorrect simply to divide the total amount to be retired by the 'number of periods (usually years) during which the investment shall be active, as the sums periodically withdrawn have a certain interest-earning power varying with the length of time they are held and with the opportunities afforded for their investment. But though the interest may be considered to accumulate regularly year by year, yet the rules and tables for compouiid interest do not apply, owing to the addition of a fixed amount of new money to the total at the beginning of each period. Briefly stated, the problem of sinking-funds is, to find the amount of money which must be periodically set aside at a certain rate of interest, regularly compounded, to yield a certain sum in a given length of time. In most practical cases the interest is compounded and the fresh amount added at the same time—usually once a year—and on this basis the problem may be solved as follows : Let S = total amount to be retired, Let T = interest rate : R = 1 + r, Let n = life of tlie sinking-fund or the amortization-period, Let L = the sum set aside at the end of each year. Then the amouilt of the sinking-fund at the end of first year is 2, which at the end of n years will have illcreased by compound interest to IRn-l. Similarly, another amount, x, will be set aside at the end of second year, which will in turn increase