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Practice Questions
Test your understanding with targeted questions related to the topic.
Question 1
Easy
What is the formula to calculate Equivalent Annual Cost?
💡 Hint: Think about annualizing costs and using factors.
Question 2
Easy
What are sunk costs?
💡 Hint: Consider costs that can't influence future decisions.
Practice 4 more questions and get performance evaluation
Interactive Quizzes
Engage in quick quizzes to reinforce what you've learned and check your comprehension.
Question 1
What is the main purpose of calculating Equivalent Annual Cost?
- To determine initial investment
- To compare long-term costs of assets
- To analyze salvage values
💡 Hint: Think about long-term financial assessments.
Question 2
True or False: Sunk costs should be included in the replacement analysis.
- True
- False
💡 Hint: Consider what costs can actually impact future decisions.
Solve 2 more questions and get performance evaluation
Challenge Problems
Push your limits with challenges.
Question 1
A company has two machines: Machine A costs ₹5,00,000, has an operating cost of ₹1,00,000 per year, and a salvage value of ₹2,00,000 after 3 years. Machine B costs ₹3,00,000, with an operating cost of ₹50,000 per year and a salvage value of ₹1,00,000 after 3 years. Calculate the EAC for both machines and advise which machine the company should choose.
💡 Hint: Use respective capital recovery and sinking fund factors to find EAC.
Question 2
An organization decides to replace its old equipment. The old equipment has a market value of ₹4,00,000, annual maintenance costs of ₹2,00,000, and is expected to last for another 5 years. The new equipment costs ₹6,00,000, has an annual maintenance cost of ₹1,50,000, and a salvage value of ₹3,00,000. What would be the EAC for both pieces of equipment, and which should they keep?
💡 Hint: Remember to consider future salvage values while calculating EAC.
Challenge and get performance evaluation