3.1. Ownership Cost

Try these first

1. 1.

   What is depreciation?

   Hint

   Consider how value decreases over time.

2. 2.

   What are the main components of ownership cost?

   Hint

   Think about the different costs associated with owning equipment.

3. 3.

   What is the primary goal of calculating ownership costs?

   • Minimize labor costs
   • Estimate total equipment costs
   • Increase initial purchase cost

   Hint

   What do you need to budget for when using equipment?

4. 4.

   True or False: The Peurifoy method disregards the timing of cash flows.

   • True
   • False

   Hint

   Consider what the time value of money really means.

5. 5.

   A construction company acquires a new backhoe for $150,000. If the expected salvage value is$30,000 and the estimated useful life is 10,000 hours, calculate the hourly depreciation using both the Caterpillar and Peurifoy methods.

   Hint

   Establish the depreciation first, then add nuances from Peurifoy.

6. 6.

   Discuss how changing the interest rate from 5% to 10% would affect total cost estimation under Peurifoy's method.

   Hint

   Think about how finance costs link with cash timing in construction.