1.1 - Equipment Life and Replacement Analysis (Part 3)
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Practice Questions
Test your understanding with targeted questions
What does EAC stand for?
💡 Hint: Think about how we relate costs annually.
Why are sunk costs irrelevant in replacement analysis?
💡 Hint: Consider what past costs mean for the future.
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Interactive Quizzes
Quick quizzes to reinforce your learning
What is the Equivalent Annual Cost (EAC)?
💡 Hint: Reflect on how this aids in making informed decisions.
True or False: Sunk costs should be considered in replacement analysis.
💡 Hint: Remember the definition of sunk costs.
3 more questions available
Challenge Problems
Push your limits with advanced challenges
You have a piece of machinery that costs $80,000 with the following operating costs: $15,000 in year one, increasing by $2,000 each subsequent year. If the salvage value is projected to be $20,000 after five years and your discount rate is 10%, how would you calculate the EAC to determine optimal replacement timing?
💡 Hint: Use a financial calculator for accurate present value computations.
Consider a scenario where a defender shows consistent maintenance costs but a challenger, though more expensive upfront, has lower ongoing costs. Analyze the financial implications of maintaining the defender versus investing in the challenger.
💡 Hint: Run a break-even analysis to find the crossover point in costs.
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