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4 cards from this section. Quick, good the night before a test.
What is the investment cost?
Think about the financial burden of owning machinery.
What does depreciation mean?
Consider how a car loses value over the years.
What are investment costs primarily concerned with?
Think about what owning equipment financially entails.
Is it true that insurance costs always cover maintenance?
Consider the purpose of insurance.
You are tasked with preparing a bid for a construction project. You must account for a piece of machinery costing $100,000, with a salvage value of $20,000, an expected useful life of 5 years, insurance costs of 2%, tax costs of 2.5%, and storage costs of 1%. Calculate the total ownership cost.
Break down your calculation into parts for clarity.
A contractor is assessing the ownership cost of two machines. Machine A has an initial cost of $50,000 and a salvage value of $10,000 with a useful life of 10 years. Machine B costs $70,000 with a salvage value of $15,000 also over 10 years. Which machine has the lower total ownership cost when you consider taxes, insurance, and storage?
Apply the AAI formula for both machines.
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