6. Final Comparison and Analysis

Try these first

1. 1.

   What is the primary purpose of a replacement analysis?

   Hint

   Think about cost efficiency.

2. 2.

   Define sunk cost.

   Hint

   Consider expenses that are no longer relevant.

3. 3.

   What is the main cost considered when comparing the defender and challenger?

   • Initial purchase cost
   • Annual operating costs
   • Sunk costs

   Hint

   Think about what costs persist over time.

4. 4.

   True or False: The initial purchase price of the defender is relevant in the replacement analysis.

   • True
   • False

   Hint

   Consider what influences future costs.

5. 5.

   A defender costs ₹30,00,000, operates on ₹1,20,000 annually, and has a salvage value of ₹4,00,000. A challenger costs ₹20,00,000, operates on ₹80,000 annually, and has a salvage value of ₹6,00,000. Calculate and discuss which option to choose.

   Hint

   Ensure to factor in salvage properly!

6. 6.

   If the economic life of both equipment types extends beyond 5 years, how would this impact your financial analysis?

   Hint

   Consider the additional years of costs.