Practice Working Out A Problem For Economic Life (3) - Equipment Life and Replacement Analysis (Part 3)

Practice: Working out a Problem for Economic Life

Lesson 3Equipment 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.
What is replacement analysis?
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Focus on its purpose in financial decisions.
Question 2.
Define the term 'market value'.
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Think about how an asset's worth is evaluated today.
3Question 3.
What is the primary goal of replacement analysis?
- To maximize initial investments
- To determine optimal replacement timing
- To calculate resale value
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Remember, it's about timing!
4Question 4.
True or False: Sunk costs are relevant to future financial decisions.
- True
- False
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Focus on analyzing only current and future costs.
Question 5.
A construction company is analyzing whether to replace a bulldozer bought for $200,000. It has an annual operating cost of $50,000. If its average resale value decreases to $90,000 after the first year, calculate the EAC and determine if it should be replaced.
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Use present worth factors to determine EAC over the useful life of the bulldozer.
Question 6.
A firm is deciding whether to keep an old crane with a persistent annual maintenance cost of $30,000. New models cost $150,000 with an expected annual operating cost of $10,000. Calculate EAC and discuss potential benefits.
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Consider running calculations over the crane’s anticipated useful life.

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