2 - Calculating Equivalent Annual Cost
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Practice Questions
Test your understanding with targeted questions
What does EAC stand for?
💡 Hint: Think about its purpose in finance.
Why should sunk costs be ignored in replacement analysis?
💡 Hint: Consider what sunk costs mean in the financial context.
4 more questions available
Interactive Quizzes
Quick quizzes to reinforce your learning
What does EAC represent in financial analysis?
💡 Hint: Focus on its core purpose in equipment management.
True or False: Sunk costs are essential for making current financial decisions.
💡 Hint: Think about what makes costs relevant for decision.
1 more question available
Challenge Problems
Push your limits with advanced challenges
A company considers replacing a machine purchased at $50,000, with expected annual operating costs of $4,000 in the first year, $5,000 in the second, and $6,000 in the third. Assume a capital recovery factor of 0.1. What is the EAC?
💡 Hint: Break down your steps into costs by year for clarity.
Two pieces of equipment have the same purchase price but different EACs due to maintenance. Machine A's EAC is $12,000 while Machine B's is $10,000. What advice would you give a manager trying to choose between them?
💡 Hint: Think about long-term expenses versus upfront costs in decision-making.
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