4.2. Finding Book Value at Different Years

Try these first

1. 1.

   Define the term 'Cost of Investment'.

   Hint

   Think about the connection between investment and machinery.

2. 2.

   What is depreciation?

   Hint

   Consider how equipment ages and loses value.

3. 3.

   Which method accounts for the timing of cash flows in calculating investment costs?

   • Average Annual Investment Method
   • Time Value Method
   • Straight-Line Method

   Hint

   Consider which method is more precise.

4. 4.

   True or False: The cost of investment can only be calculated if equipment is purchased with borrowed funds.

   • True
   • False

   Hint

   Think about different ways of acquiring equipment.

5. 5.

   A company buys machinery for $500,000 with a salvage value of$100,000 and a useful life of 8 years. Calculate the annual depreciation using the straight-line method.

   Hint

   Use the difference between the initial cost and salvage value.

6. 6.

   If an equipment’s average annual investment comes out to be $60,000, and the total ownership costs include depreciation of$15,000, insurance of $3,000, taxes of$1,500, and storage costs of $1,000, calculate the hourly ownership cost based on an annual operating time of 2000 hours.

   Hint

   Sum all costs and then divide by the annual operating hours.