1.2 - Salvage Value and Life of Challenger
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Practice Questions
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What is the operating cost of the challenger?
💡 Hint: Check the section where costs are mentioned.
What does salvage value mean?
💡 Hint: Think about the end value of the equipment.
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Interactive Quizzes
Quick quizzes to reinforce your learning
What is the operating cost of the challenger?
💡 Hint: Consider the annual costs mentioned earlier.
Is the salvage value of the defender higher than that of the challenger?
💡 Hint: Review the numbers for both machines.
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Challenge Problems
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A construction company is evaluating two machines—Defender and Challenger. If Defender has an initial cost of ₹35,00,000 and an operating cost of ₹1,35,000 with a salvage value of ₹6,00,000, while Challenger has an initial cost of ₹27,50,000 and an operating cost of ₹90,000 with a salvage value of ₹12,00,000, what should the company conclude based on EAC after 5 years?
💡 Hint: Evaluate both cash outflows and inflows to get the annualized costs.
Given that the investment cost is at 10%, if a company considers replacing a machine with a higher salvage value and lower operating costs, how might this decision change over time if market conditions affect salvage values?
💡 Hint: Consider how external factors can shift financial decisions over time.
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