3.2 - Estimating Equivalent Annual Costs for Years
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Practice Questions
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What does EAC stand for?
💡 Hint: Think about how you measure costs annually.
Define sunk cost.
💡 Hint: Consider costs that are no longer relevant to decision making.
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Interactive Quizzes
Quick quizzes to reinforce your learning
Why is the timing of cash flows important in equipment replacement analysis?
💡 Hint: Recall how future costs are discounted to present value.
True or False: Sunk costs should be considered in replacement decision-making.
💡 Hint: Think about costs that are no longer recoverable.
3 more questions available
Challenge Problems
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If a factory decides to retain an aging machine instead of replacing it, calculate the implications based on an expected increase in annual operating costs by 10% each year.
💡 Hint: Utilize the cash flow approach and take market value into account.
A company owns a piece of machinery with a current market value of $25,000, a purchase cost of $100,000 with annual operating costs expected to double in the next five years. Discuss the appropriate replacement strategy.
💡 Hint: Focus on analyzing potential future costs to inform the decision.
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