Practice Current Value and Sunk Cost Analysis - 4.2 | 20. Equivalent Annual Cost Calculation | Construction Engineering & Management - Vol 1
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4.2 - Current Value and Sunk Cost Analysis

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Learning

Practice Questions

Test your understanding with targeted questions related to the topic.

Question 1

Easy

Define Equivalent Annual Cost (EAC).

💡 Hint: Think about how costs can be distributed across years.

Question 2

Easy

What is a sunk cost?

💡 Hint: Consider costs that have already been spent on prior decisions.

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 stand for?

  • Effective Annual Cost
  • Equivalent Annual Cost
  • Estimated Annual Cost

💡 Hint: It relates to how costs can be annualized.

Question 2

True or False: Sunk costs should be included when making a decision about a future investment.

  • True
  • False

💡 Hint: Remember what happens when money is spent.

Solve 1 more question and get performance evaluation

Challenge Problems

Push your limits with challenges.

Question 1

A firm is choosing between two different systems, System A with an upfront cost of $200,000 for a lifetime of 15 years, and System B costing $180,000 lasting 12 years. Account for salvage values of $20,000 for both. Which has the lower EAC at a discount rate of 5%? Show detailed calculations.

💡 Hint: Focus on how future costs are transformed into annual costs!

Question 2

A manufacturer invested $1 million into machinery, with operating costs projected to be $150,000/year. After 7 years, they can sell the machinery for $100,000. If the EAC is higher than anticipated, discuss potential business strategies to mitigate losses.

💡 Hint: Look towards future opportunities rather than past investments to make cost-effective decisions.

Challenge and get performance evaluation