5.1. Input Data for Example

Try these first

1. 1.

   Define what the cost of investment includes.

   Hint

   Consider components like interest rates and potential returns.

2. 2.

   What are two methods for calculating investment costs?

   Hint

   Think about the importance of timing in cash flows.

3. 3.

   What is the formula for calculating the cost of investment?

   • Cost = Interest Rate x Purchase Price
   • Cost = Interest Rate x Value of Equipment
   • Cost = Purchase Price - Interest Rate

   Hint

   Think about what components are involved in this formula.

4. 4.

   True or False: The Average Annual Investment Method provides an exact calculation of ownership costs.

   • True
   • False

   Hint

   Consider whether the term 'exact' applies.

5. 5.

   Assuming a machine has a purchase price of INR 1,000,000, a salvage value of INR 100,000, and a useful life of 10 years, calculate the average annual investment using the Average Annual Investment formula.

   Hint

   Break down the values into P, S, and n.

6. 6.

   If you want to calculate total ownership cost for a machine which has a depreciation of INR 250,000, investment cost of INR 100,000, insurance cost of INR 15,000, tax cost of INR 20,000, and storage cost of INR 10,000, what is the total cost?

   Hint

   Ensure all components are included in your calculations.