1. What is Capital Cost When Salvage Value Is 0?

Capital Cost is fixed, one-time expenses incurred on the purchase of land, buildings, construction, and equipment used in the production of goods or in the rendering of services. When salvage value is 0, the calculation simplifies to account for the full depreciation of the asset.

2. How Does the Calculator Work?

The calculator uses the formula:

Where:

• \( Useful\ Life \) — The estimated number of years the asset remains in service (measured in hours)
• \( Average\ Investment \) — The money spent on purchasing equipment, accounting for depreciation

Explanation: This formula calculates the capital cost when the salvage value of the asset is zero, meaning the asset has no residual value at the end of its useful life.

3. Importance of Capital Cost Calculation

Details: Accurate capital cost calculation is essential for financial planning, budgeting, and determining the economic viability of investments in fixed assets.

4. Using the Calculator

Tips: Enter the useful life in hours and the average investment in currency units. Both values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What is useful life in this context?
A: Useful life is an accounting estimate of the number of years (converted to hours) an asset is likely to remain in service for cost-effective revenue generation.

Q2: Why is average investment used instead of initial investment?
A: Average investment accounts for depreciation over time, providing a more accurate representation of the capital employed throughout the asset's life.

Q3: When is salvage value considered zero?
A: Salvage value is zero when the asset is expected to have no residual value at the end of its useful life, often due to complete depreciation or obsolescence.

Q4: What are the limitations of this calculation?
A: This calculation assumes linear depreciation and may not account for variable depreciation rates, inflation, or changing market conditions.

Q5: How can this calculation be used in business decisions?
A: It helps in evaluating the total cost of ownership, comparing investment options, and making informed decisions about capital expenditures.