4.1. Final Equivalent Annual Cost for Defender

Try these first

1. 1.

   What is the annual operating cost of the Challenger?

   Hint

   Refer to the section where both costs are compared.

2. 2.

   Define salvage value.

   Hint

   Think about how salvage value is used in calculations.

3. 3.

   What is the operating cost of the Defender?

   • ₹90,000
   • ₹1,35,000
   • ₹6,00,000

   Hint

   This cost is explicitly mentioned in the initial comparison.

4. 4.

   True or False: Any initial purchase costs should be included in the replacement analysis.

   • True
   • False

   Hint

   Think about what sunk costs mean when making financial decisions.

5. 5.

   If the Defender maintained its operating cost but increased its salvage value to ₹7,00,000, how would that affect the EAC in comparison to the Challenger?

   Hint

   Check how salvage values directly reduce final costs.

6. 6.

   Create a scenario where both machines are equally viable, and explain the decision-making process.

   Hint

   Consider all operational aspects and not just cost.