5.2. Ownership Cost Calculation According to Peurifoy

Try these first

1. 1.

   What are the components of ownership costs?

   Hint

   Think about what costs you would incur beyond just buying a piece of equipment.

2. 2.

   How is depreciation calculated?

   Hint

   Remember the equation you learned — Initial Cost minus Salvage Value.

3. 3.

   What does ownership cost include?

   • Only initial purchase
   • Initial purchase and operating costs
   • Only operating costs

   Hint

   Think about all costs associated with owning and running equipment.

4. 4.

   Is depreciation considered in operating cost calculations?

   • True
   • False

   Hint

   Remember the definitions we discussed earlier.

5. 5.

   Calculate the total cost for a piece of equipment with a purchase price of 500,000, having operating costs of 60 per hour, expected to be used for 2,000 hours annually over 10 years, with a salvage value at 20%.

   Hint

   Start by determining annual depreciation before summing it up with operating costs.

6. 6.

   Apply both Caterpillar and Peurifoy methods on a dump truck with a purchase price of 3 crores. Discuss key differences in estimates produced.

   Hint

   Understand how each method approaches the timing of cash flows and expenses.