3.3. Illustrations for Estimating Economic Life

Try these first

1. 1.

   What is economic useful life?

   Hint

   Think about the relationship between costs and profits.

2. 2.

   Define obsolescence cost.

   Hint

   It relates to how valuable your equipment stays over time.

3. 3.

   What is the definition of economic useful life?

   • The total lifespan of equipment
   • The time during which equipment can operate without repairs
   • The time period when costs are minimized or profits maximized

   Hint

   Relates to financial performance of the equipment.

4. 4.

   True or False: Downtime does not affect the decision to replace machinery.

   • True
   • False

   Hint

   Think about how downtime can intensify operational costs.

5. 5.

   Given that an excavator has been costing $2,000 in repairs per month due to age, while potential new models cost$60,000, analyze at which point it becomes more economical to replace than to continue repairs.

   Hint

   Compare total repair costs to the cost of acquiring a new machine.

6. 6.

   Develop a flowchart to plan the replacement schedule of an aging machine considering obsolescence and downtime factors. What elements would you include in this chart?

   Hint

   Use visual elements to organize costs and decision points.