5. Summary of Methods

Try these first

1. 1.

   What is depreciation?

   Hint

   Think about what happens to the value of a car over years.

2. 2.

   Calculate the depreciation for a machine valued at 50 lakh with a depreciation rate of 20%.

   Hint

   Use the formula: Depreciation = Rate × Book Value.

3. 3.

   What is the formula for calculating depreciation?

   • Depreciation = Rate × Book Value
   • Depreciation = Book Value - Current Value
   • Depreciation = Current Value ÷ Total Years

   Hint

   Remember the rate's role in determining financial worth.

4. 4.

   True or False: The minimum cost method focuses on when the annual cost of the old machine is less than that of the new.

   • True
   • False

   Hint

   Consider how costs interplay in decision making.

5. 5.

   Calculate the cumulative costs over 5 years with a starting annual cost of 20 lakh that increases by 10% each year due to maintenance.

   Hint

   Remember to use the formula for a growing annuity.

6. 6.

   Given that average annual profits for a current machine is 4 lakh, calculate when to replace it if the proposed machine's average annual profit is 5 lakh indicating a better investment.

   Hint

   Project the profits over the machine lifespan to make the best decision.