Practice Estimating Equivalent Annual Costs For Years (3.2) - Equipment Life and Replacement Analysis (Part 3)

Practice: Estimating Equivalent Annual Costs for Years

Lesson 3.2Equipment Life and Replacement Analysis (Part 3)

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11 questions

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4 cards from this section. Quick, good the night before a test.
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6 sample questions

Question 1.
What does EAC stand for?
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Think about how you measure costs annually.
Question 2.
Define sunk cost.
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Consider costs that are no longer relevant to decision making.
3Question 3.
Why is the timing of cash flows important in equipment replacement analysis?
- It makes cash inflows larger
- It allows for better estimation of future costs
- It has no effect at all
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Recall how future costs are discounted to present value.
4Question 4.
True or False: Sunk costs should be considered in replacement decision-making.
- True
- False
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Think about costs that are no longer recoverable.
Question 5.
If a factory decides to retain an aging machine instead of replacing it, calculate the implications based on an expected increase in annual operating costs by 10% each year.
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Utilize the cash flow approach and take market value into account.
Question 6.
A company owns a piece of machinery with a current market value of $25,000, a purchase cost of $100,000 with annual operating costs expected to double in the next five years. Discuss the appropriate replacement strategy.
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Focus on analyzing potential future costs to inform the decision.

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