2.4 - Calculating EAC for Salvage Value
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Practice Questions
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Define Economic Life.
💡 Hint: Consider the balance of costs involved.
What is the purpose of calculating EAC?
💡 Hint: Think about consistency in cost analysis.
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Interactive Quizzes
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What is the primary purpose of EAC?
💡 Hint: Think of how we ensure all costs are analyzed equally.
True or False: Salvage value must always be included in EAC calculations.
💡 Hint: Consider how recoverable funds impact overall expenses.
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Challenge Problems
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You purchased equipment for $75,000 with a salvage value of $10,000. If expected annual maintenance costs increase from $3,000 to $15,000 over its useful life of 8 years at an interest rate of 12%, calculate the EAC.
💡 Hint: Focus on breaking apart each cost for a complete understanding.
A new machine has an initial cost of $50,000, an expected operating cost that starts at $1,500 per year and grows by $500 annually. If the salvage value is estimated at $5,000 after 10 years with a discount rate of 8%, calculate its EAC and determine the most economically viable replacement year.
💡 Hint: Remember all costs impact the EAC calculation.
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