1.2. Salvage Value and Life of Challenger

Try these first

1. 1.

   What is the operating cost of the challenger?

   Hint

   Check the section where costs are mentioned.

2. 2.

   What does salvage value mean?

   Hint

   Think about the end value of the equipment.

3. 3.

   What is the operating cost of the challenger?

   • ₹90,000
   • ₹1,35,000
   • ₹12,00,000

   Hint

   Consider the annual costs mentioned earlier.

4. 4.

   Is the salvage value of the defender higher than that of the challenger?

   • True
   • False

   Hint

   Review the numbers for both machines.

5. 5.

   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.

6. 6.

   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.