4.2. Cumulative Investment Costs

Try these first

1. 1.

   What is the economic life of a machine?

   Hint

   Think about the optimal time to replace machinery.

2. 2.

   Define depreciation.

   Hint

   Consider how wear and tear affects machinery.

3. 3.

   What does economic life refer to?

   • Period where costs are highest
   • Period where costs are lowest
   • Time until machine failure

   Hint

   Consider when a machine is most cost-effective.

4. 4.

   True or False: Depreciation increases the book value of an asset over time.

   • True
   • False

   Hint

   Think about how assets lose value.

5. 5.

   A machine has a purchase price of 50,00,000 and follows the double declining balance method with an 8-year lifespan. Calculate the depreciation for the first three years.

   Hint

   Follow the steps for each year and keep track of the book value.

6. 6.

   Calculate the cumulative costs of maintenance for a machine where initial maintenance is 2,00,000 growing by 10% each year. Calculate for 5 years.

   Hint

   Apply the growth factor diligently, and keep adding to find cumulative costs.