1. Economic Life of a Machine

Try these first

1. 1.

   Define economic life.

   Hint

   What is the purpose of determining economic life?

2. 2.

   What is depreciation?

   Hint

   Think about asset value and how it changes.

3. 3.

   What is the economic life of a machine?

   • The period of maximum costs
   • The period of minimum costs
   • The maintenance period

   Hint

   Think about the costs associated with machines.

4. 4.

   True or False: Obsolescence costs become more significant as a machine ages.

   • True
   • False

   Hint

   How does technology affect older machines?

5. 5.

   A machine is purchased at 50,00,000 and is expected to last 10 years with an annual maintenance cost that increases by 5% each year. Calculate the total estimated costs for the first three years.

   Hint

   Start with the initial cost and consider each subsequent year’s maintenance.

6. 6.

   If a machine has an obsolescence factor that increases by 2% per year, and starts at 0%, what will the obsolescence cost be at the end of 5 years, assuming its initial value is 30,00,000?

   Hint

   Remember to contribute the percentage over the five years to determine the total.