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5 cards from this section. Quick, good the night before a test.
What is the annual operating cost of the challenger?
Look for the lowest annual cost between defender and challenger.
Define what a sunk cost is.
Think about costs that can no longer be altered.
What is the annual operating cost of the defender?
It's the higher of the two costs discussed.
True or False: Sunk costs should be considered in replacement analysis.
Remember what sunk costs represent.
Given that the initial cost and book value of the defender are $3,800,000, what would be the sunk cost if the current trading value is $2,250,000?
Sunk cost is only relevant to current losses, not future income.
If the interest rate were to increase from 10% to 12%, recalculate the EAC for both equipment and determine the preferred option.
Remember that increased rates affect future value definitions.
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