4. Estimating Ownership Cost Using Time Value Concepts

Try these first

1. 1.

   What is the purpose of the Capital Recovery Factor?

   Hint

   Think about loan repayments over time.

2. 2.

   What does Ownership Cost refer to?

   Hint

   Consider what expenses are involved in running equipment.

3. 3.

   What does CRF help you determine in financial terms?

   • Weekly payment amounts
   • Annual cash flows
   • Monthly costs

   Hint

   Think about the uniform amount it provides.

4. 4.

   True or False: The Present Worth Factor can help determine how much cash you need today to generate future cash flows.

   • True
   • False

   Hint

   Remember what the factor represents.

5. 5.

   A drill costs ₹150 lakhs, has an estimated life of 15 years, and a salvage value of ₹25 lakhs. Calculate the annualized ownership cost including a tax rate of 3%, storage of 1.5% of the purchase price, and operating hours of 3000 per year.

   Hint

   Remember to factor in all cost percentages to the annualized amount.

6. 6.

   If a company wishes to earn ₹2 lakhs annually from their investment for the next 20 years at an interest rate of 5%, what is the present worth needed now?

   Hint

   Refer back to the formula for calculating present worth.