4.5. Calculating Annualized Salvage Value

Try these first

1. 1.

   What is the capital recovery factor used for?

   Hint

   Think about loan repayments.

2. 2.

   Define salvage value.

   Hint

   Consider what happens to assets at the end of their lifespan.

3. 3.

   What does the capital recovery factor help determine?

   • A. Total cost of the asset
   • B. Annual payment to recover costs
   • C. Depreciation
   • D. None of the above

   Hint

   Focus on cash flows related to capital recovery.

4. 4.

   True or False: The salvage value is the value of equipment at the start of its life?

   • True
   • False

   Hint

   Think about when an asset is being sold after use.

5. 5.

   A company needs to replace a machine that has an estimated salvage value of $50,000 after 10 years. If they want to calculate how much to save each year to reach a total of$50,000 at an interest rate of 5%, what is the uniform annual saving amount?

   Hint

   Apply the sinking fund factor.

6. 6.

   Calculate the annualized cost for a piece of equipment priced at $200,000 with a salvage value of$20,000 after 10 years with an interest rate of 8%.

   Hint

   Use the capital recovery factor in your calculations.