Practice Replacement Cost Estimates (3.1) - Economic Life of a Machine

Practice: Replacement Cost Estimates

Lesson 3.1Economic Life of a Machine

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9 questions

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6 sample questions

Question 1.
What is economic life?
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Think about the phrase 'minimum cost of holding'.
Question 2.
What is one reason machines become obsolete?
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Consider what happens when new machines are introduced.
3Question 3.
What is economic life?
- The time period over which costs are minimized
- The time period over which repairs are maximum
- The time period before machine failure
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Think 'minimized costs' when referring to economic life.
4Question 4.
True or False: Obsolescence affects a machine's salvage value.
- True
- False
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Obsolescence and value are interconnected.
Question 5.
Calculate the total replacement cost after four years for a machine starting at 35,00,000 with 2,10,000 annual increases. Also, factor in a depreciation of 1,00,000 per year after its third year.
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Sum all increases and account for depreciation appropriately.
Question 6.
If a machine has a downtime cost of 500 per hour and it is down for 30 hours due to repairs, calculate the total downtime loss.
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Multiply the hourly cost by the total hour lost.

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