2.2. Tax Costs

Try these first

1. 1.

   What are the two main methods of calculating investment costs?

   Hint

   Think about how cash flows are represented over time.

2. 2.

   What is the typical range for insurance costs as a percentage of machine value?

   Hint

   Recall how insurance protects machinery.

3. 3.

   What is the cost of investment?

   • The purchase price of the machine
   • The annual cost of capital
   • Insurance premiums

   Hint

   Think about how financing affects costs.

4. 4.

   True or False: Insurance costs are fixed and do not vary with the value of machinery.

   • True
   • False

   Hint

   Recall the variability based on equipment value.

5. 5.

   A company buys a machine for ₹75 lakhs, with a salvage value of ₹10 lakhs and a useful life of 8 years. Calculate the annual depreciation using the straight-line method. What would the average annual investment be if the storage cost is 1%, tax is 2%, and insurance is 2%?

   Hint

   Break down each calculation step for clarity.

6. 6.

   Discuss the implications of underestimating ownership costs when preparing for a project bid.

   Hint

   Think of a real-world scenario where budget overruns have occurred.