6.2. References for Further Reading

Try these first

1. 1.

   What is depreciation?

   Hint

   Think about how wear and tear affects value.

2. 2.

   How do we calculate depreciation for the first year?

   Hint

   Remember the initial book value to start your calculation.

3. 3.

   What is the formula for calculating annual costs?

   • Annual Cost = Depreciation + Operating Costs
   • Annual Cost = Book Value - Depreciation
   • Annual Cost = Operating Costs / Depreciation

   Hint

   Think about what all expenses a machine incurs each year.

4. 4.

   True or False: Economic life is the time period when the asset is least productive.

   • True
   • False

   Hint

   Recall the definition of economic life carefully.

5. 5.

   A machine costs 30 lakh and has a depreciation rate of 25%. Calculate its book value after 2 years, and explain the significance of this value.

   Hint

   Use the depreciation formula and adjust for the book value.

6. 6.

   Discuss the implications of deciding to replace machinery based on annual cost vs. maximum profit method. Provide an example.

   Hint

   Reflect on examples of machines that may differ in performance and cost metrics.