3.4. Comparison of Maximum Profits

Try these first

1. 1.

   Calculate the first-year depreciation for a machine worth 20 lakh with a depreciation rate of 40%.

   Hint

   Use the formula D = 0.4 × Book Value.

2. 2.

   What is the book value at the end of the first year for a machine purchased at 30 lakh with a depreciation of 12 lakh?

   Hint

   Subtract first-year depreciation from the purchase price.

3. 3.

   What is the formula for calculating depreciation?

   • D = Cost × 0.4
   • D = 0.4 × Book Value
   • D = Book Value - Cost

   Hint

   Remember how depreciation affects the asset over time.

4. 4.

   True or False: The cumulative cost is the total of all costs incurred over a specified period.

   • True
   • False

   Hint

   Think about what cumulative means in financial terms.

5. 5.

   A company has machinery with an original cost of 1 crore and operates in a sector where usage affects productivity significantly. Each year, the machine loses 50,000 in value due to inefficiencies. Calculate the potential payback period if the annual profit generated at start is 12 lakh and this decreases by 10% every year.

   Hint

   Keep track of cumulative profits and evaluate against initial costs to identify when payback occurs.

6. 6.

   Evaluate the impact of switching from a machine with high maintenance costs but lower initial costs to a newer model with lower maintenance but higher upfront costs. What factors should the decision-makers consider?

   Hint

   Discuss the benefits of balancing upfront investments versus long-term savings.