1.2.2.1. Defining Average Value of Machine

Try these first

1. 1.

   Define investment costs in your own words.

   Hint

   Think about what expenses come with owning machinery.

2. 2.

   What are two sources of investment costs?

   Hint

   Consider where the capital for machinery might come from.

3. 3.

   What does investment cost refer to?

   • Annual costs associated with capital invested
   • Monthly expenses on maintenance
   • Fixed costs for machinery rental

   Hint

   Focus on costs related to ownership.

4. 4.

   True or False: The average annual investment method is the most precise method for calculating ownership costs.

   • True
   • False

   Hint

   Consider how each method accounts for timing.

5. 5.

   A machine's purchase price is 150 lakhs, with a salvage value of 20 lakhs over its 15-year life. Use the AAI formula to calculate the average annual investment.

   Hint

   Follow the formula step by step.

6. 6.

   If the total ownership cost calculation needs to include an average investment cost of 60 lakhs, insurance at 2%, taxes at 4%, and storage at 1.5%, calculate the total ownership cost for the year.

   Hint

   Multiply the average investment by the sum of percentages to find the costs.