Website owner:  James Miller

Formula for computing the cost of things

   How much does a thing cost you over the period of a year?  How 
   much is your house costing you per year?  How about your car?  
   There is a single formula that covers all cases.  It is:


         Cost = Lost Return + Expenses + Depreciation



                where:

                   Cost --- Cost for the year
                   Lost Return --- the return you could get in the     
                       marketplace on an amount of money equal to 
                       your current equity in the item
                   Expenses --- all operating and other expenses
                       for the year (including any interest you paid
                       over the year on borrowed money for the item)
                   Depreciation --- depreciation for the year (i.e. 
                       value of item at beginning of year minus value
                       at end of the year)




   EXAMPLE.  Compute the cost of your housing for a year.


    Formula for computing the cost of housing:

         Cost = Lost Return + Expenses + Depreciation


                 where:

                    Cost --- cost of housing for the year
                    Lost Return --- the return you could get in the     
                       marketplace on an amount of money equal to 
                       your current equity in the house
                    Expenses --- expenses incurred during the year
                       (interest paid out on mortgage + property
                       tax + insurance costs + maintenance costs)
                    Depreciation --- amount of depreciation for 
                       the year (negative if the house appreciates)


   June 1994