1.9 - Economic Life and Equivalent Annual Cost
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Practice Questions
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What does EAC stand for?
💡 Hint: Think about breaking down total costs into annual terms.
Why is market value more important than initial cost?
💡 Hint: Consider what a buyer cares about.
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Interactive Quizzes
Quick quizzes to reinforce your learning
What does EAC help determine in equipment management?
💡 Hint: Think about the cost over time.
True or False: Sunk costs should influence future replacement decisions.
💡 Hint: Consider if past expenditures matter.
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Challenge Problems
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A machine has an initial cost of 40,00,000 with an expected life of 6 years. The operating costs are projected to increase from 3,00,000 in year 1 to 5,00,000 in year 6. Calculate the EAC and determine if it should be replaced.
💡 Hint: Focus on calculating EAC year by year.
Discuss the effect of failing to account for market value when analyzing equipment replacement.
💡 Hint: Consider how historical costs differ from current realities.
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