2.1. Irrelevant Initial Estimates

Try these first

1. 1.

   What is a defender in the context of this chapter?

   Hint

   Think about which machine is currently in use.

2. 2.

   Why should sunk costs be ignored in replacement analysis?

   Hint

   Consider the definition of sunk costs.

3. 3.

   What is the primary focus of replacement analysis?

   • Initial purchase price
   • Current market value
   • Historical costs

   Hint

   Which value reflects the current worth of the equipment?

4. 4.

   True or False: Sunk costs should be considered in making replacement decisions.

   • True
   • False

   Hint

   Remember this specific definition.

5. 5.

   Analyze a scenario where a construction company continues to use an old piece of equipment disregarding relevant future costs due to attachment to original investment. What are the potential implications?

   Hint

   Consider both current operation costs and potential advancements offered by new equipment.

6. 6.

   Design a replacement strategy that includes both defenders and challengers under varying operating costs and current market conditions. How would you approach this problem?

   Hint

   Think about current operating costs in relation to upgraded technology gains.