3.4. Salvage Value Conversion to EAC

Try these first

1. 1.

   What is the difference between the defender and the challenger in terms of operating costs?

   Hint

   Consider the numbers given in the analysis.

2. 2.

   What are sunk costs?

   Hint

   Think about expenses that do not impact future financial decisions.

3. 3.

   What is the annual operating cost of the challenger?

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

   Hint

   Review the section discussing operating costs.

4. 4.

   True or False: A sunk cost can be recovered when replacing machinery.

   • True
   • False

   Hint

   Consider the definition of a sunk cost.

5. 5.

   A company has an old machine with total costs of 8,00,000 over 5 years and a new machine with projected costs of 5,00,000. Calculate the EAC for both and determine which is better.

   Hint

   Use simple division to find annualized costs.

6. 6.

   Discuss the implications of retaining an outdated machine with lower operating costs but high maintenance costs.

   Hint

   Reflect on overall lifetime expenses versus short-term savings.