7.3. Economic Life

Try these first

1. 1.

   Define 'economic life' in the context of construction equipment.

   Hint

   Think about the relationship between cost and machine usage.

2. 2.

   What is the difference between defender and challenger?

   Hint

   Consider which machine is being used and which one is being considered.

3. 3.

   What is the primary goal of replacement analysis?

   • Maximizing repair costs
   • Minimizing operational downtime
   • Optimizing equipment replacement timing

   Hint

   Consider what we are trying to achieve with replacement decisions.

4. 4.

   True or False: Economic life ends when equipment can no longer operate.

   • True
   • False

   Hint

   Think about cost relationships, not just equipment function.

5. 5.

   Calculate the economic life of a piece of equipment that has an initial cost of $100,000, an increasing repair cost of$10,000 annually, and expected returns decreasing by $5,000 per year.

   Hint

   Set up an equation where total returns minus total costs gives you the breakeven point.

6. 6.

   A construction company has two excavators: one (old) incurs high repairs costing $15,000 annual, while the other (new) has a lower repair cost of$5,000 and higher efficiency. Discuss whether to replace the old one.

   Hint

   Think about long-term cost versus short-term savings.