5.3. Estimation of Ownership Costs

Try these first

1. 1.

   What does the cost of investment represent?

   Hint

   Think about what capital costs involve and how they are calculated.

2. 2.

   What percentage range is typical for insurance costs?

   Hint

   Recall the common range mentioned in the text.

3. 3.

   The cost of investment includes which of the following?

   • A) Annual interest paid
   • B) Rate of return
   • C) Both A and B

   Hint

   Think about what constitutes costs associated with funds used for investment.

4. 4.

   True or False: Ownership costs only include the purchase price of equipment.

   • True
   • False

   Hint

   Consider all aspects of costs involved beyond just the initial purchase.

5. 5.

   You have a piece of machinery with a purchase price of ₹ 100,000, a salvage value of ₹ 20,000, a useful life of 10 years, and an insurance cost of 2%. Calculate the total ownership cost over its useful life.

   Hint

   Break down each step and calculate each cost over the machinery’s useful life.

6. 6.

   A machine costs ₹ 250,000, has a salvage value of ₹ 30,000, and an expected life of 5 years. If you'd finance through a loan at 6%, calculate the cost of investment and total ownership cost, including insurance (1%) and taxes (2%).

   Hint

   Identify and sum all cost components to find the total ownership cost for the machine.