Practice Calculating Equivalent Annual Cost - 2 | 19. Equipment Life and Replacement Analysis (Part 3) | Construction Engineering & Management - Vol 1
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Knowledge

2 - Calculating Equivalent Annual Cost

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Learning

Practice Questions

Test your understanding with targeted questions related to the topic.

Question 1

Easy

What does EAC stand for?

💡 Hint: Think about its purpose in finance.

Question 2

Easy

Why should sunk costs be ignored in replacement analysis?

💡 Hint: Consider what sunk costs mean in the financial context.

Practice 4 more questions and get performance evaluation

Interactive Quizzes

Engage in quick quizzes to reinforce what you've learned and check your comprehension.

Question 1

What does EAC represent in financial analysis?

  • Annual Capital Assessment
  • Equivalent Annual Cost
  • Economic Adjustment Cost

💡 Hint: Focus on its core purpose in equipment management.

Question 2

True or False: Sunk costs are essential for making current financial decisions.

  • True
  • False

💡 Hint: Think about what makes costs relevant for decision.

Solve 1 more question and get performance evaluation

Challenge Problems

Push your limits with challenges.

Question 1

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.

Question 2

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.

Challenge and get performance evaluation