5.4. Implications of Cash Flow Timing

Try these first

1. 1.

   What is depreciation?

   Hint

   Consider how assets lose worth.

2. 2.

   What would you calculate if the book value is 28 lakh?

   Hint

   Remember the depreciation formula.

3. 3.

   What is the formula for calculating depreciation?

   • D = Book Value / 0.4
   • D = 0.4 * Book Value
   • D = Book Value + Depreciation

   Hint

   Think about how depreciation is typically calculated.

4. 4.

   True or False: The economic life of a machine is the period in which it incurs the highest operating costs.

   • True
   • False

   Hint

   Consider when it's no longer cost-effective to maintain.

5. 5.

   You have a machine valued at 35 lakh initially which also depreciates at 0.4. Calculate its book value after two years considering the annual operating cost is 15 lakh.

   Hint

   Calculate year by year.

6. 6.

   Discuss why it is beneficial to re-evaluate machinery every few years regarding the maximum profit method.

   Hint

   Consider profit trends over time.