2.2 - Relevant Costs for Replacement Analysis
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Practice Questions
Test your understanding with targeted questions
What is the annual operating cost of the defender?
💡 Hint: Refer back to the initial figures provided for each equipment.
Define the term 'sunk cost.'
💡 Hint: Think about costs that do not affect future decisions.
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Interactive Quizzes
Quick quizzes to reinforce your learning
What is the annual operating cost of the challenger?
💡 Hint: Reflect on the cost structure provided.
True or False: Sunk costs impact future replacement decisions.
💡 Hint: Think about whether these costs can be recovered.
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Challenge Problems
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If the defender's current market value is 2,250,000, and the operating cost is 135,000 per year, calculate the total cost over five years without considering salvage value.
💡 Hint: Remember to include both the market value and the total operational costs.
Assuming both the defender and challenger undergo operational costs over a five-year period, how would you determine the best option among them, including all costs?
💡 Hint: Utilize the EAC formula for both machines and compare the results.
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