Practice Economic Life And Equivalent Annual Cost (1.9) - Equipment Life and Replacement Analysis (Part 3)

Practice: Economic Life and Equivalent Annual Cost

Lesson 1.9Equipment Life and Replacement Analysis (Part 3)

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9 questions

Flashcard drill
4 cards from this section. Quick, good the night before a test.
Exercise
6 questions · about 4 min · pass mark 70%. Hints available.
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Quiz
3 questions · about 2 min · pass mark 70%. Hints available.
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6 sample questions

Question 1.
What does EAC stand for?
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Think about breaking down total costs into annual terms.
Question 2.
Why is market value more important than initial cost?
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Consider what a buyer cares about.
3Question 3.
What does EAC help determine in equipment management?
- The total purchase price of a machine
- The optimal replacement time for equipment
- The depreciation rate of machinery
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Think about the cost over time.
4Question 4.
True or False: Sunk costs should influence future replacement decisions.
- True
- False
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Consider if past expenditures matter.
Question 5.
A machine has an initial cost of 40,00,000 with an expected life of 6 years. The operating costs are projected to increase from 3,00,000 in year 1 to 5,00,000 in year 6. Calculate the EAC and determine if it should be replaced.
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Focus on calculating EAC year by year.
Question 6.
Discuss the effect of failing to account for market value when analyzing equipment replacement.
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Consider how historical costs differ from current realities.

5 more questions in this section. Enroll free to practise them all.