2.2. Dr. James Douglas Guidelines for Replacement

Try these first

1. 1.

   What is depreciation?

   Hint

   It pertains to the worth of machines as they age.

2. 2.

   How do you calculate the first year’s depreciation for a machine costing 28 lakh at a rate of 0.4?

   Hint

   Think of it as a percentage of the cost.

3. 3.

   What is the first step in determining the replacement timing of machinery?

   • Calculating operating costs
   • Assessing depreciation
   • Evaluating potential profits

   Hint

   Think about value loss.

4. 4.

   True or False: The minimum cost method suggests replacing equipment when future costs exceed cumulative costs of the new machine.

   • True
   • False

   Hint

   Focus on cost comparisons.

5. 5.

   If a loader depreciates at a steady rate and becomes less productive each year, calculate the depreciation over 5 years. If its original price was 30 lakh, how would you expect to see its value after each year?

   Hint

   Track the yearly decrease using cumulative depreciation.

6. 6.

   Given a new machine's minimum average annual cumulative cost is 16 lakh, and the current machine is projected to cost 18 lakh next year, is it time to consider replacement? Discuss the implications.

   Hint

   Consider the cost-benefit balance in machine longevity.