2.1 - Finding Present Worth of Costs
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Practice Questions
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Define present worth.
💡 Hint: Think about why future money is not worth as much as money today.
What is a sunk cost?
💡 Hint: Consider costs that are irrelevant for decision-making due to completion.
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Interactive Quizzes
Quick quizzes to reinforce your learning
What does present worth represent?
💡 Hint: Remember, future amounts are often lower than their present parallels.
True or False: Sunk costs should always be considered in equipment replacement analysis.
💡 Hint: Think if previous expenses genuinely affect future financial decisions.
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Challenge Problems
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A bulldozer costs $200,000, with annual operating costs increasing from $15,000 to $25,000 over its useful life of 5 years. If it can be sold for $30,000 after 5 years, calculate the total EAC assuming a discount rate of 8%.
💡 Hint: Consider each year's operating increase while summing expenses for accurate valuation.
Your equipment’s initial cost is $120,000, it has a predicted market value of $20,000 after five years, and it incurs $10,000 in maintenance fees each year. Calculate the EAC based on a discount rate of 5%.
💡 Hint: Remember to factor in market projections to reflect realistic expectations.
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