2 - Equipment cost - Ownership cost (Average annual investment method)
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Practice Questions
Test your understanding with targeted questions
What does ownership cost represent?
💡 Hint: Think about what costs you would need to cover just to own the equipment.
Name one method of calculating depreciation.
💡 Hint: What is a simple way to spread a cost evenly over several years?
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Interactive Quizzes
Quick quizzes to reinforce your learning
What are ownership costs?
💡 Hint: Think about the costs you pay just to keep equipment.
Is depreciation a cash flow item?
💡 Hint: Remember what depreciation reflects.
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Challenge Problems
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Given an excavator with an initial cost of $90,000, a tire cost of $5,000, a salvage value of $10,000, and a useful life of 12 years; calculate the annual depreciation using the straight line method.
💡 Hint: Remember to subtract the tire cost and salvage value.
If a loader is expected to generate $150,000 in revenue and incurs ownership costs of $30,000, how would underestimating these costs affect the project’s profitability?
💡 Hint: Consider the relation between costs and revenues in project bids.
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