4.2.1. Book Value Calculation Formula

Try these first

1. 1.

   What is the formula to calculate the cost of investment?

   Hint

   Think about the basic components needed to determine the investment cost.

2. 2.

   Define depreciation in your own words.

   Hint

   Consider how machines lose value as they are used.

3. 3.

   What is the formula for calculating the cost of investment?

   • Interest Rate × Value of Equipment
   • Purchase Price + Salvage Value
   • Cost of Maintenance

   Hint

   Think about what financial costs are involved in machinery ownership.

4. 4.

   True or False: Depreciation represents the increase in value of machinery over time.

   • True
   • False

   Hint

   Reflect on what happens to machinery as it is used.

5. 5.

   A piece of machinery costs $200,000 with a salvage value of$40,000 and a useful life of 15 years. Calculate the annual depreciation. Why might this figure help in project estimation?

   Hint

   Always remember to deduct salvage value when calculating depreciation.

6. 6.

   If a company borrows money to purchase equipment valued at $100,000 at an interest rate of 6%, how much would the company need to account for in annual investment costs?

   Hint

   Understand how interest rates affect overall investment costs.