2. Lecture-06 Equipment Life and Replacement Analysis (Part-1)

Try these first

1. 1.

   What is economic useful life?

   Hint

   Think about both costs and profits.

2. 2.

   Define downtime costs.

   Hint

   Consider repair scenarios.

3. 3.

   What is the primary consideration for determining economic useful life?

   • Maximizing profit
   • Minimizing downtime
   • Increasing repair costs

   Hint

   Think about financial outcomes.

4. 4.

   True or False: Obsolescence cost refers solely to the depreciation of machinery.

   • True
   • False

   Hint

   Consider different aspects of value reduction.

5. 5.

   A construction company has an old excavator that costs $5,000 annually in maintenance. A new excavator would cost$40,000 but would save the company $10,000 every year in operational efficiency due to downtime reductions. Should the company replace the old excavator? Use economic analysis to justify your answer.

   Hint

   Weigh the long-term benefits against initial investments.

6. 6.

   Calculate the obsolescence cost if a machine is 5 years old and has decreased from $100,000 to$70,000 in market value. What percentage value has been lost?

   Hint

   Use the original value as a base for your percentage calculations.