5. Example on Estimating Ownership Cost

Try these first

1. 1.

   Define ownership costs in your own words.

   Hint

   Think about different kinds of expenditures involved.

2. 2.

   What are investment costs?

   Hint

   Consider both the purchase and other potential returns.

3. 3.

   What is included in ownership costs?

   • Only purchase price
   • Insurance
   • taxes
   • storage costs
   • Depreciation only

   Hint

   Think about all the costs included in owning machinery.

4. 4.

   True or False: Depreciation represents the increase in the asset's value over time.

   • True
   • False

   Hint

   Recall what happens to the value of machines over use.

5. 5.

   You acquire a machine for $100,000, with a salvage value of$10,000 over 8 years. Calculate the average annual investment cost and explain the components.

   Hint

   Remember to include the salvage value in your calculations.

6. 6.

   If a machine incurs storage costs of 1% of its value at $50,000, what are the annual storage costs, and how would you apply this to ownership calculations?

   Hint

   Use percentage formulas to find the annual storage cost.