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4 cards from this section. Quick, good the night before a test.
What is depreciation?
Think about what happens to a car's value after a few years.
What are two components of investment costs?
Consider both borrowed money and money you could have invested.
What does depreciation refer to?
Think about your car's value as it ages.
True or False: Investment costs only refer to loans taken for purchasing machines.
Consider if there are other factors to account for.
Calculate the total ownership cost for a piece of machinery with a purchase price of $100,000, salvage value of $10,000, a useful life of 10 years, with investment cost at 7%, insurance at 3%, taxes at 2%, and storage at 1%. Assume the average annual investment method.
Work systematically through each component and sum them up for total ownership cost.
If the average annual investment method gives you an average investment of $45,000 for a machine, and ownership costs account for 12% of that value. What would those ownership costs be?
You just need to calculate a percentage of the average investment value.
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