Practice Parameters For Replacement Analysis (2) - Economic Life of a Machine

Practice: Parameters for Replacement Analysis

Lesson 2Economic Life of a Machine

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9 questions

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6 sample questions

Question 1.
What is economic life in terms of machinery?
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Think about the time frame in which holding costs are minimized.
Question 2.
What happens to costs after the economic life?
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Consider factors leading to additional expenses.
3Question 3.
What does economic life refer to?
- The maximum useful life of a machine
- The period with minimal costs
- The time until complete breakdown
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Consider the cost-effectiveness aspect.
4Question 4.
True or False: Costs significantly decrease as a machine ages.
- True
- False
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Think about the relationship between age and cost in machinery.
Question 5.
You have a machine that was purchased for ₹50,00,000, with expected depreciation calculated at a rate of 2,00,000 per year. If inflation increases replacement costs by 5% annually, calculate the projected cost of replacement in 5 years.
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Apply the compounding effect of inflation to the initial cost.
Question 6.
Analyze the opportunity cost of maintaining an older machine versus purchasing a new model. Consider aspects such as operational efficiency and capital investment.
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Think broadly about benefits and potential revenue loss.

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