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4 cards from this section. Quick, good the night before a test.
Define the term 'Equivalent Annual Cost.'
It involves annualizing all costs over the life of the equipment.
What is meant by 'sunk costs'?
Consider what expenses you can't reclaim or change.
What is the main purpose of replacement analysis?
Think about the financial aspects of maintaining versus replacing machinery.
True or False: Sunk costs should influence future equipment replacement decisions.
Consider how much you can regain from previous investments.
A construction company evaluates two trucks: Truck A costs 50,000 initially with a maintenance cost of 4,000 yearly, while Truck B costs 70,000 with 3,000 yearly maintenance. Assume a resale value of 20,000 for Truck A after five years and 25,000 for Truck B after five years. Calculate the EAC for both trucks and identify which truck would be more economical considering a 10% interest rate.
Use the formulas for Present Worth and Capital Recovery Factor effectively to find the answers.
Discuss how ignoring market dynamics can significantly affect replacement analysis. Provide examples of cost implications when past values overshadow current pricing during decision-making.
List potential risks in financial outcomes from poor analysis to flesh out your answer.
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