Intermediate Equipment Handbook
Intech Associates
component. For a piece of equipment procured on a loan, it is fairly
straightforward. The cost should be the actual cost of the finance, i.e. the interest
charges plus any other (non-capital repayment) charges that the financing
institution includes in the loan arrangement.
Extreme care should be taken regarding the evaluation of finance arrangements,
as lending institutions have different ways of calculating interest charges. The
same quoted interest rate can result in widely varying interest charges due to
different calculation methods. It is important to obtain detailed information on the
actual interest charges, whether they are fixed or will vary throughout the period
of the loan.
If the equipment is purchased with cash, more flexibility can be used to assess
the value of the capital. This is one cost component where a contractor can
adjust his/her price to gain competitive advantage after considering the prevailing
market rates. Consideration of current and likely future interest rates, the risks
associated with alternative investments, and inflation rate should also come into
the decision making process.
October 2012
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