Website owner:  James Miller

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# Formula for computing the cost of things

How much does a thing cost you over the period of a year?  How
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

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