3. Maximum Profit Method Analysis

Try these first

1. 1.

   What is the first year's depreciation for a machine valued at 28 lakh with a depreciation rate of 40%?

   Hint

   Use the formula: Depreciation = Rate × Book Value.

2. 2.

   How do you calculate the cumulative profit?

   Hint

   Consider previous annual profits to find the total.

3. 3.

   What is the first step in calculating annual costs for a loader?

   • Calculate depreciation
   • Add annual revenue
   • Determine maintenance costs

   Hint

   Think about the costs involved in asset management.

4. 4.

   True or False: The economic life of a machine is the point at which its profit begins to decline.

   • True
   • False

   Hint

   Consider what happens over time with machine performance.

5. 5.

   A factory has an old loader with an annual cost of 20 lakh and a revenue of 25 lakh for three consecutive years. If the new loader can generate a revenue of 30 lakh yearly, should the factory replace its old loader immediately?

   Hint

   Compare projected profits over the next few years for each option.

6. 6.

   The current loader's average cumulative profit has plateaued. If its maximum profit is 5 lakh per year, but the proposed loader could generate 8 lakh per year, should it be replaced immediately?

   Hint

   Consider future financial benefits in making the decision.