1. Estimating Equipment Cost Using Two Methods

Try these first

1. 1.

   Define ownership costs.

   Hint

   Think about what it costs to own rather than operate.

2. 2.

   What is depreciation?

   Hint

   Consider how a car loses value each year.

3. 3.

   What are the main components of ownership costs?

   • Depreciation
   • Interest
   • Insurance
   • Taxes
   • Fuel
   • Repairs
   • Labor
   • Initial Cost
   • Operating Cost

   Hint

   Think about costs that persist while owning an asset.

4. 4.

   True or False: The Peurifoy method does not consider salvage value.

   • True
   • False

   Hint

   Look at what the truck could be sold for after use.

5. 5.

   A construction company purchased an off-highway dump truck for ₹3 crores, tires cost ₹11 lakhs, and it has an expected useful life of 12.5 years. Calculate the hourly ownership cost, excluding any operating costs.

   Hint

   Break it down into components for clarity.

6. 6.

   Using the Peurifoy method, a truck's initial cost is ₹3 crores. If the salvage value is estimated at 20% of this value, calculate the salvage value. Then, explain how this affects your overall cost estimation.

   Hint

   Consider how resale value changes the money you'll calculate in your budget.