1.2. Methods to Calculate Cost of Investment

Try these first

1. 1.

   Define the term 'Cost of Investment'.

   Hint

   Consider what it means in terms of capital.

2. 2.

   What is depreciation?

   Hint

   Think about how value decreases with time.

3. 3.

   What does the Cost of Investment entail?

   • Only purchase price
   • Purchase price and depreciation
   • Annual cost including capital and opportunity costs

   Hint

   Remember the broader definition of costs.

4. 4.

   True or False: The average annual investment method simplifies the complexity of ownership costs.

   • True
   • False

   Hint

   Consider the purpose of the method.

5. 5.

   A company buys a loader for 50 lakhs with a 5-lakh salvage value. The useful life is 10 years. Calculate the average annual investment.

   Hint

   Get the components of initial cost and salvage value correct.

6. 6.

   If a machine costs 120 lakhs, with an expected salvage of 15 lakhs, how does its ownership cost influence bid preparation?

   Hint

   Think about long-term financial planning.