Subtopic: Cost analysis of implements and tractors
Question Statement:
A combine harvester is purchased for $C = \text{Rs. } 24,00,000$ with an estimated salvage value of $S = \text{Rs. } 4,00,000$ at the end of a useful life of $N = 10\text{ years}$. The annual interest rate is $i = 10\%$ ($0.10$). The Capital Recovery Factor is $CRF = \frac{i(1+i)^N}{(1+i)^N - 1} = 0.16275$. Using the capital recovery method, where annual capital recovery cost is $(C - S) \cdot CRF + S \cdot i$, the annual capital cost in Rupees is ________ (answer in integer).
Answer Key:
365500
Step-by-Step Solution & Explanation
1. Depreciable capital amount:
$C - S = 24,00,000 - 4,00,000 = \text{Rs. } 20,00,000$
2. Annual capital recovery on depreciable value:
$(C - S) \times CRF = 20,00,000 \times 0.16275 = \text{Rs. } 3,25,500$
3. Return on salvage value:
$S \times i = 4,00,000 \times 0.10 = \text{Rs. } 40,000$
4. Total annual capital recovery cost:
$\text{Annual Cost} = 3,25,500 + 40,000 = \text{Rs. } 3,65,500$