3 - Methods to Calculate Ownership Costs
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Practice Questions
Test your understanding with targeted questions
What does investment cost include?
💡 Hint: Think about borrowed funds and potential returns.
What are the two primary methods of calculating ownership costs?
💡 Hint: Recall the methods discussed.
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Interactive Quizzes
Quick quizzes to reinforce your learning
What is the purpose of the time value method?
💡 Hint: Remember, timing is key in financial decisions.
The average annual investment method expresses ownership costs as a percentage of what?
💡 Hint: Think about the lifespan of the equipment.
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Challenge Problems
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A construction firm buys a machine for $300,000 with annual depreciation of $30,000 and has to pay $3,000 in insurance and $5,000 in taxes annually. Calculate the total ownership cost per year.
💡 Hint: Add each of the relevant costs together.
Using the AAI method, determine the average annual investment for a machine initially purchased for $400,000, expecting a salvage value of $80,000 over 8 years.
💡 Hint: Apply the formula for calculating AAI carefully.
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