4.2. Approaches to Replacement Analysis

Try these first

1. 1.

   Define economic life.

   Hint

   Think about how costs and time relate to machinery.

2. 2.

   What does the minimum cost approach focus on?

   Hint

   Consider what defines the lowest expenditure.

3. 3.

   What is the focus of the minimum cost approach?

   • Maximizing profit
   • Minimizing total costs
   • Evaluating obsolescence

   Hint

   Think about what you aim for when looking at costs.

4. 4.

   True or False: Downtime costs are only important for equipment that is currently operational.

   • True
   • False

   Hint

   Consider significance irrespective of current machine status.

5. 5.

   A contractor evaluates two excavators: one purchased five years ago with increasing maintenance costs and another newer model promising better fuel efficiency. Create a replacement analysis considering costs, downtime, and profit potential over the next five years.

   Hint

   Look into future costs and operational efficiency.

6. 6.

   Construct an analysis framework for replacing concrete mixers focusing on production efficiency and costs. Consider current market rates, potential downtime due to inefficiencies, and estimated lifespan of the current mixer.

   Hint

   Think visually about how different factors impact profits.