3.2 - Conversion of Initial Cost to EAC
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Practice Questions
Test your understanding with targeted questions
What is the initial cost of the defender?
💡 Hint: Refer to the current market value mentioned.
Identify the annual operating cost for the challenger.
💡 Hint: It is the lower operating cost compared to the defender.
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Interactive Quizzes
Quick quizzes to reinforce your learning
What does EAC stand for?
💡 Hint: Think about the acronym; what makes sense in terms of annual costs?
Is it necessary to consider sunk costs when evaluating equipment replacement?
💡 Hint: Consider if historical expenses influence current financial decisions.
1 more question available
Challenge Problems
Push your limits with advanced challenges
Given a machine with a higher salvage value but increased operating costs, analyze if a company should keep the original or replace it. Justify your decision using EAC.
💡 Hint: Compare the EACs - the lower one should guide your decision.
If a new piece of equipment saves ₹50,000 in annual operating costs, but costs ₹1,00,000 more upfront than the existing asset, calculate the impact on EAC over 5 years.
💡 Hint: Factor in both upfront and recurring costs to justify the decision.
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