1.2. Recap of Previous Lecture

Try these first

1. 1.

   What does ownership cost encompass?

   Hint

   Think about the major expenses incurred by owning an asset.

2. 2.

   How does inflation impact the cost of equipment?

   Hint

   Consider how prices change over time.

3. 3.

   What does ownership cost primarily include?

   • Only maintenance
   • Only depreciation
   • Depreciation and maintenance

   Hint

   Think about all the expenses related to the ownership of an asset.

4. 4.

   True or False: Time value of money implies that money now is worth less than the same amount later.

   • True
   • False

   Hint

   Consider why people desire to receive money earlier.

5. 5.

   You plan to buy a machine costing $20,000 today. What will be the future cost after 5 years if inflation increases by 4% annually?

   Hint

   Use the future value formula incorporating inflation.

6. 6.

   If a company has to allocate funds for an equipment purchase of $150,000 in 6 years, what is the present value it needs to deposit today at a 7% interest rate?

   Hint

   Apply the present worth compound amount factor.