4.7. Calculating Other Components of Ownership Cost

Try these first

1. 1.

   What is the Capital Recovery Factor used for?

   Hint

   Think about cash flows and repayment schedules.

2. 2.

   Define the term 'Ownership Cost.'

   Hint

   Consider all costs related to asset ownership.

3. 3.

   What is the primary purpose of the Capital Recovery Factor?

   • To find present worth
   • To determine loan repayments
   • To calculate future value

   Hint

   Think about how loans are repaid over time.

4. 4.

   True or False: Ownership Cost includes only the purchase price of the equipment.

   • True
   • False

   Hint

   Consider maintenance, taxes, and other operational costs.

5. 5.

   A business owner plans to purchase a new machine for $250,000, which will last for 8 years. If the company expects to recover its investment with a yearly income of$50,000, what should be the required annual price considering a 10% interest rate?

   Hint

   Make sure you incorporate the time value of money in your calculations.

6. 6.

   If a piece of equipment has an estimated operation cost of $15,000 per year and you expect its residual value will be$20,000 at the end of its useful life of 5 years, calculate the total ownership cost.

   Hint

   Don’t forget to include salvage values when calculating total ownership.