5. Economic Useful Life

Try these first

1. 1.

   What does economic useful life refer to?

   Hint

   Think about the relationship between cost and productivity.

2. 2.

   Define the terms defender and challenger in the context of equipment management.

   Hint

   Consider which machine is currently in operation.

3. 3.

   What is meant by economic useful life?

   • The lifespan until the equipment breaks down.
   • The period where maintenance costs exceed operating costs.
   • The time when the equipment yields maximum profit.
   • The duration from purchase to disposal.

   Hint

   Consider what time frame maximizes profitability.

4. 4.

   True or False: The defender is the machine that is being considered for replacement.

   • True
   • False

   Hint

   Identify which term applies to the existing equipment.

5. 5.

   A company has two excavators: Excavator A has been in service for eight years and has increasing repair costs. Excavator B is a new model that offers 20% more efficiency. How would you decide whether to replace Excavator A with Excavator B?

   Hint

   Consider not just the immediate costs, but long-term productivity.

6. 6.

   If the inflation rate is 2% per year and the purchase price of new equipment is expected to rise, how will this affect the economic useful life decision in the next five years?

   Hint

   Evaluate how future costs will impact the balance sheet.