3. Economic Life of the Machine

Try these first

1. 1.

   What does EAC stand for?

   Hint

   What annual cost do we evaluate concerning equipment?

2. 2.

   What is USCRF used for?

   Hint

   Think about how we share costs over time.

3. 3.

   What does EAC help businesses to determine?

   • Annual profit
   • Cost variations
   • Best time for replacement

   Hint

   Focus on the effectiveness of cost management.

4. 4.

   True or False: Cumulative costs only account for initial purchase costs.

   • True
   • False

   Hint

   Think about total expenditures over time.

5. 5.

   A company purchased a machine for 2,500,000 rupees. It has annual maintenance costs of 150,000 rupees and a projected resale value of 500,000 rupees after 5 years. Calculate the EAC assuming an interest rate of 10%.

   Hint

   First determine present values and apply them against the USCRF.

6. 6.

   An organization is considering two machines. Machine A has an EAC of 1,000,000 rupees, while Machine B has 950,000 rupees. Discuss factors other than EAC that should influence a decision on which machine to purchase.

   Hint

   Reflect on non-financial aspects that impact long-term value.