1.1. Introduction to Economic Life

Try these first

1. 1.

   Define economic life.

   Hint

   Think about the concept of when it's most economical to use a machine.

2. 2.

   What happens to costs after the economic life of a machine?

   Hint

   Consider what occurs as a machine ages.

3. 3.

   What is economic life?

   • A period of high maintenance
   • The optimal period of cost efficiency
   • The duration of equipment ownership

   Hint

   Think about when it’s best to use a machine.

4. 4.

   True or False? As a machine ages, its obsolescence cost decreases.

   • True
   • False

   Hint

   Consider how new technology impacts older equipment.

5. 5.

   A construction company has a bulldozer with an initial cost of 50,00,000. If its maintenance costs increase by 10% each year and depreciates at a flat rate of 4,00,000 a year, when should they consider replacing it to minimize total costs?

   Hint

   Consider both increasing maintenance costs and decreasing value.

6. 6.

   Evaluate the impact of inflation on the decision to replace equipment worth 30,00,000 with an expected inflation of 5% annually over the next five years. What will be the price of the new machine in five years?

   Hint

   Use the formula for future value calculations.