Practice Third-party Approach In Replacement Analysis (1.5) - Equipment Life and Replacement Analysis (Part 3)

Practice: Third-Party Approach in Replacement Analysis

Lesson 1.5Equipment Life and Replacement Analysis (Part 3)

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9 questions

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2 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.
Define the third-party approach in replacement analysis.
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Think about who is evaluating the asset.
Question 2.
What does the term sunk cost mean?
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Consider expenses that no longer affect your current decisions.
3Question 3.
What is the primary value considered in the third-party approach?
- A) Historical Cost
- B) Current Market Value
- C) Book Value
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Think about what would matter to someone evaluating the asset today.
4Question 4.
True or False: Sunk costs should be included in replacement analysis.
- True
- False
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Consider what affects current decisions versus past expenses.
Question 5.
A company invested $100,000 in a machine that now has a market value of $30,000 after five years. If future operating costs are expected to rise to $15,000 annually after year five, determine whether the company should replace the machine or not.
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Factor in ongoing costs versus what the machine could currently sell for.
Question 6.
A contractor has a piece of equipment with a current fair market value of $25,000 and is expecting to incur repair costs of $18,000 in the next year. Analyze if replacement could be beneficial.
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Balance current value against looming expenses to decide.

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