2. Components of Ownership Cost

Try these first

1. 1.

   Define investment cost.

   Hint

   Think about what costs are involved in purchasing machinery.

2. 2.

   What is the typical range for insurance costs?

   Hint

   Remember, insurance is a percentage of the asset's value.

3. 3.

   What is the primary factor in determining investment cost?

   • Value of the Equipment
   • Interest Rate
   • Depreciation

   Hint

   Consider how loans influence costs.

4. 4.

   True or False: Storage costs are only applicable when the equipment is in use.

   • True
   • False

   Hint

   Reflect on how storage operates in machinery management.

5. 5.

   A machine valued at $50,000 incurs an investment cost of 8%. Additionally, the insurance cost is set at 1.5%, and property taxes at 3%. If storage is 0.8%, calculate the total ownership cost.

   Hint

   Consider calculating each component individually and then summing them up.

6. 6.

   Discuss how neglecting the storage costs can affect the estimated ownership cost over a year, especially for a construction firm.

   Hint

   Think about how many days equipment needs to be stored and secured.