Practice New Estimates And Remaining Life Considerations (4.3)

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6 sample questions

Question 1.
What does EAC stand for?
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Think about yearly financial metrics.
Question 2.
What is the formula for calculating EAC?
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Consider how we break down total costs.
3Question 3.
What does EAC help determine?
- Annualized costs
- Monthly costs
- Total production cost
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Think about yearly payments.
4Question 4.
Is resale value considered a cash outflow?
- True
- False
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Consider how we account cash inflows and costs.
Question 5.
Calculate the total EAC for a piece of machinery with a purchase price of 8,000,000, an expected annual operating cost of 200,000, a salvage value of 1,000,000, with a useful life of 7 years at an annual interest rate of 5%.
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Factor in USCRF calculations and do adjustments for salvage.
Question 6.
Discuss how a change in salvage value from 1,500,000 to 2,000,000 alters the economic analysis and decision on equipment replacement.
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Assess the financial impact through cash flow implications.

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