2. Parameters for Replacement Analysis

Try these first

1. 1.

   What is economic life in terms of machinery?

   Hint

   Think about the time frame in which holding costs are minimized.

2. 2.

   What happens to costs after the economic life?

   Hint

   Consider factors leading to additional expenses.

3. 3.

   What does economic life refer to?

   • The maximum useful life of a machine
   • The period with minimal costs
   • The time until complete breakdown

   Hint

   Consider the cost-effectiveness aspect.

4. 4.

   True or False: Costs significantly decrease as a machine ages.

   • True
   • False

   Hint

   Think about the relationship between age and cost in machinery.

5. 5.

   You have a machine that was purchased for ₹50,00,000, with expected depreciation calculated at a rate of 2,00,000 per year. If inflation increases replacement costs by 5% annually, calculate the projected cost of replacement in 5 years.

   Hint

   Apply the compounding effect of inflation to the initial cost.

6. 6.

   Analyze the opportunity cost of maintaining an older machine versus purchasing a new model. Consider aspects such as operational efficiency and capital investment.

   Hint

   Think broadly about benefits and potential revenue loss.