3.2. Cumulative Profit Calculation

Try these first

1. 1.

   What does depreciation represent?

   Hint

   Think about the machine's value decreasing.

2. 2.

   How do you calculate the first year's depreciation for a 28 lakh machine at 40%?

   Hint

   Multiply the book value by the percentage.

3. 3.

   What formula do we use to calculate depreciation?

   Hint

   Think about how depreciation relates to book value.

4. 4.

   True or False: The average annual cumulative cost can help determine when to replace a machine.

   • True
   • False

   Hint

   Relate this to the replacement decision processes.

5. 5.

   Given a machine costs 30 lakh, with depreciation at 0.4, calculate the book value after three years if the operating costs increase by 2 lakh each year starting from 10 lakh.

   Hint

   Use the depreciation for calculating the new book value each year.

6. 6.

   If the maximum profit period occurs at year 6 with a profit of 9 lakh, but the current loader’s profit in year 5 is 7 lakh, should a replacement be planned?

   Hint

   Compare the profits across the two machines to decide.