4.3. Total Hourly Ownership Cost

Try these first

1. 1.

   What is the formula for calculating annualized initial cost?

   Hint

   Look for the definitions of 'i' and 'n'.

2. 2.

   How do you derive salvage value from initial cost?

   Hint

   Remember the salvage value is often expressed as a percentage.

3. 3.

   What is the formula for calculating the annualized initial cost?

   • A) Annualized Initial Cost = Initial Cost × [i(1+i)ⁿ / [(1+i)ⁿ - 1]]
   • B) Annualized Initial Cost = Initial Cost / (1 + i)ⁿ
   • C) Annualized Initial Cost = i + n

   Hint

   Recall the components of the formula we discussed.

4. 4.

   True or False: The salvage value is included in the calculation of total hourly ownership cost.

   • True
   • False

   Hint

   Think about how depreciation relates to ownership costs.

5. 5.

   If a piece of equipment costs ₹1,00,00,000 and has a life of 20 years expected at 10% salvage, calculate its annual depreciation.

   Hint

   Subtract the salvage from the initial cost before dividing by the lifespan.

6. 6.

   Given an equipment that incurs ₹750/hr for operating costs, how does this affect a total ownership cost derived from other factors? If ownership resulted in ₹1900/hr, find the complete total.

   Hint

   Add the operating and total ownership together for a complete picture.