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2 cards from this section. Quick, good the night before a test.
What is replacement analysis?
Think about the decision-making process in budgeting.
Define sunk cost.
Consider the costs of past investments.
What should be ignored in replacement analysis?
These costs have already occurred.
True or False: The equivalent annual cost accounts for future cash flows discounting.
Think about how future expenses relate to present finances.
A company has an old machine with an annual operating cost of 1,35,000 and a current market value of 22,50,000. After 5 years, it will have a salvage value of 6,00,000. If a new machine has an operating cost of 90,000 and a market value of 12,00,000 after 5 years, compare both using EAC and recommend an actionable decision.
Compare calculated EAC values.
Evaluate two construction machines: one has high operational costs but a significant salvage value while another is cheaper upfront with lower operational costs. How would you decide using replacement analysis?
Determine the economic life for accurate comparison.
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