3. Costs Associated with the Machine

Try these first

1. 1.

   What does 'economic life' refer to?

   Hint

   Think about the time when a machine is most beneficial to keep.

2. 2.

   What is downtime cost?

   Hint

   Reflect on the times the machine cannot work due to repairs.

3. 3.

   What is economic life?

   • Period of maximum cost
   • Period of minimum cost
   • Fixed duration of machine usage

   Hint

   Focus on the benefits of owning machinery over time.

4. 4.

   True or False: Obsolescence costs refer to the depreciation of older machines only.

   • True
   • False

   Hint

   Think of how new models affect older machines.

5. 5.

   A company has a machine that costs 2,00,000 per year to maintain after the first year. If inflation is projected to be 5% annually, calculate the maintenance budget for the next five years.

   Hint

   Adjust each year's cost by multiplying the prior year's cost by 1 plus the inflation rate.

6. 6.

   Calculate how obsolescence affects a machine's resale value if its current market worth is 25,00,000, but newer models cause a depreciation of 30%. What’s the expected value?

   Hint

   Think of how quickly technology advances and what that does to older models.