1. Cost of Investment

Try these first

1. 1.

   What is the cost of investment?

   Hint

   Think about both loans and company assets.

2. 2.

   Name one method used to calculate the cost of investment.

   Hint

   One considers present value while the other looks at averages.

3. 3.

   What does the cost of investment encompass?

   • Only purchase price
   • Interest on loans
   • Both purchase price and potential returns

   Hint

   Think of both borrowing and using company funds.

4. 4.

   Is the time value method considered more accurate than the average annual investment method?

   • True
   • False

   Hint

   Reflect on how cash flows can vary.

5. 5.

   An equipment is purchased for $150,000, with an estimated salvage value of$15,000. Calculate the depreciation cost per year over its 15-year life using straight-line depreciation.

   Hint

   Use the straight-line depreciation formula.

6. 6.

   If a machine’s average annual investment is $50,000 and its insurance is 3%, calculate the yearly insurance cost.

   Hint

   Remember to multiply the percentage by the average annual investment.