3.1 - Average Annual Investment Method
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Practice Questions
Test your understanding with targeted questions
Define investment cost in your own words.
💡 Hint: Think about whether the money used could earn returns elsewhere.
What does Average Annual Investment Method aim to estimate?
💡 Hint: Consider the relationship between the machine's value and its lifecycle.
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Interactive Quizzes
Quick quizzes to reinforce your learning
What does the Average Annual Investment Method estimate?
💡 Hint: Consider the financial aspect of owning machinery.
True or False: The Average Annual Investment Method calculates specific cash flows.
💡 Hint: Reflect on how this method functions in estimation.
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Challenge Problems
Push your limits with advanced challenges
If a construction firm has a piece of machinery purchased at $150,000, with an expected life of 10 years and a salvage value of $15,000, calculate the Average Annual Investment and discuss how ownership costs would be affected over its lifecycle.
💡 Hint: Use the AAI formula carefully and reflect on the implications of these costs over time.
Discuss the financial implications of not accounting for potential salvage value in the Average Annual Investment Method calculation.
💡 Hint: Think about the impact of accurate vs. inaccurate cost assessments.
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Reference links
Supplementary resources to enhance your learning experience.
- Understanding Machinery Costs in Construction Management
- The Time Value of Money Explained: An Introduction
- Calculating Depreciation: A Step-By-Step Guide
- IRS Depreciation Rules for Equipment
- Understanding Ownership Costs in Equipment Management
- Average Annual Investment Method Explained
- Depreciation Methods and How to Use Them
- Financial Analysis of Equipment Acquisition