3. Depreciation Calculation

Try these first

1. 1.

   Calculate the annualized cost if the initial cost is ₹2,50,00,000 with an interest rate of 7% over 10 years.

   Hint

   Use the formula for annualizing cost with interest and term.

2. 2.

   What is salvage value if the initial cost is ₹1,00,00,000 and it depreciates to 15% at the end of its life?

   Hint

   Calculate 15% of the initial cost.

3. 3.

   What does the Initial Cost represent?

   • The total payment for the asset
   • Future revenue
   • Operational costs

   Hint

   Think about the purchase price of the machinery.

4. 4.

   True or False: Salvage Value is not relevant for depreciation calculations.

   • True
   • False

   Hint

   Consider how asset depreciation works over time.

5. 5.

   If a machine costs ₹5,00,00,000, with an 8% salvage value over 15 years, calculate the total hourly ownership cost assuming operational hours of 2000/year.

   Hint

   Break it into smaller parts to compute each cost.

6. 6.

   Consider a machine with an initial cost of ₹3,24,00,000 and a salvage value of 20%. How would you compute the hourly depreciation given it’s used 1600 hours each year?

   Hint

   Combine your understanding of annual cost and salvage value precisely into this calculation.