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4 cards from this section. Quick, good the night before a test.
Define present worth.
Think about why future money is not worth as much as money today.
What is a sunk cost?
Consider costs that are irrelevant for decision-making due to completion.
What does present worth represent?
Remember, future amounts are often lower than their present parallels.
True or False: Sunk costs should always be considered in equipment replacement analysis.
Think if previous expenses genuinely affect future financial decisions.
A bulldozer costs $200,000, with annual operating costs increasing from $15,000 to $25,000 over its useful life of 5 years. If it can be sold for $30,000 after 5 years, calculate the total EAC assuming a discount rate of 8%.
Consider each year's operating increase while summing expenses for accurate valuation.
Your equipment’s initial cost is $120,000, it has a predicted market value of $20,000 after five years, and it incurs $10,000 in maintenance fees each year. Calculate the EAC based on a discount rate of 5%.
Remember to factor in market projections to reflect realistic expectations.
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