3.1. Defining Equipment Life

Try these first

1. 1.

   Define economic useful life in your own words.

   Hint

   Think about how costs change over time.

2. 2.

   What is obsolescence?

   Hint

   Consider examples of dated technology.

3. 3.

   What is the primary focus of economic useful life?

   • Maximizing downtime
   • Minimizing total costs
   • Maximizing profit through obsolescence

   Hint

   Consider what economic analysis typically seeks to achieve.

4. 4.

   True or False: Profit life continues indefinitely until the machine breaks down.

   • True
   • False

   Hint

   Think about how equipment performance changes over time.

5. 5.

   A construction company owns an excavator that has been working for 8 years, with increasing repair costs. If the descent in profitability starts at 10 years, discuss the company's options as the machine approaches its economic useful life.

   Hint

   Consider competitive analysis and potential market offerings.

6. 6.

   Determine a replacement policy for a fleet of old trucks, given their maintenance costs escalating annually, compared to new models entering the market with lower costs.

   Hint

   Make use of financial projection models.