Question 1

This table gives the data relevant to a replacement decision:   What is the EAC (Capital Costs)for year 3 at the MARR of 10%?

Accepted Answer

A) $16 840 
B) $17 622 
C) $18 181 
D) $18 210 
E) $19 460 
A) $16 840 
B) $17 622 
C) $18 181 
D) $18 210 
E) $19 460

Question 2

The salvage value of an electric generator is $10 000, while its purchase price five years ago was $20 000. It produces 45.5 megawatt-hours of electricity per year and requires $800 in annual maintenance costs. A new generator can produce electricity at $0.05 per kilowatt-hour. Should the new generator be purchased if the annual interest rate is 7%?

Accepted Answer

Since information on the new generator i

Question 3

NB Power is considering replacing its existing electricity generator. The current market value of the generator is $15 000. It depreciates at 25% per year. The generator produces 153 megawatt-hours of electricity annually and requires $3 000 in maintenance costs per year. Moreover, the maintenance costs are expected to increase by $1 200 per year in the future. On the other hand, there is another generator in the market that provides electricity at $0.059 per kilowatt-hour. What should NB Power do if the MARR is 8%?

Accepted Answer

If the old generator is kept for one mor

Question 4

Shultz Ltd. produces portable electric band saws. Currently Shultz Ltd. pays its subcontractor $6.14 per power unit excluding material costs. It is expected that sales of the electric band saws will be as high as 7 500 per year. Should Shultz Ltd. produce power units itself if the equivalent annual cost for the company to install and run the production equipment would be $49 568?

Accepted Answer

A) Yes, because own production would be cheaper by $0.22 per unit. 
B) Yes, because own production would be cheaper by $0.47 per unit. 
C) No, because own production would be $0.57 per unit more expensive. 
D) No, because own production would be $0.22 per unit more expensive. 
E) No, because own production would be $0.47 per unit more expensive. 
A) Yes, because own production would be cheaper by $0.22 per unit. 
B) Yes, because own production would be cheaper by $0.47 per unit. 
C) No, because own production would be $0.57 per unit more expensive. 
D) No, because own production would be $0.22 per unit more expensive. 
E) No, because own production would be $0.47 per unit more expensive.

Question 5

If it is said that the economic life of a challenger is four years it means that

Accepted Answer

A) the payback period is four years. 
B) four years are required for the challenger to recover its initial investment. 
C) four years are required for the challenger to recover its operating and maintenance costs. 
D) the equivalent annual cost in year four is at its minimum. 
E) the equivalent annual cost is decreasing over four years. 
A) the payback period is four years. 
B) four years are required for the challenger to recover its initial investment. 
C) four years are required for the challenger to recover its operating and maintenance costs. 
D) the equivalent annual cost in year four is at its minimum. 
E) the equivalent annual cost is decreasing over four years.

Question 6

Which of the following can be treated as a part of installation costs?

Accepted Answer

A) the costs of purchasing new equipment 
B) the costs of personnel retraining 
C) the costs of the loss in capacity value 
D) the difference between the purchase price and the salvage value 
E) the initial investment 
A) the costs of purchasing new equipment 
B) the costs of personnel retraining 
C) the costs of the loss in capacity value 
D) the difference between the purchase price and the salvage value 
E) the initial investment

Question 7

Which of the following can be called the challenger?

Accepted Answer

A) a revenue generated by a company 
B) machinery that a company wants to acquire 
C) an assembly line that a company wants to replace 
D) a piece of land that a company owns 
E) payments that a company receives from its clients 
A) a revenue generated by a company 
B) machinery that a company wants to acquire 
C) an assembly line that a company wants to replace 
D) a piece of land that a company owns 
E) payments that a company receives from its clients

Question 8

What asset will most likely contain sunk cost?

Accepted Answer

A) refrigerator 
B) airplane 
C) administrative building 
D) rail tracks 
E) auto repair equipment 
A) refrigerator 
B) airplane 
C) administrative building 
D) rail tracks 
E) auto repair equipment

Question 9

Capital cost per period

Accepted Answer

A) mostly falls with an increase in the service life of an asset. 
B) always rises with an increase in the service life of an asset. 
C) can decline at some point in the service life of an asset if it requires a major overhaul. 
D) usually increases over time. 
E) remains constant over time. 
A) mostly falls with an increase in the service life of an asset. 
B) always rises with an increase in the service life of an asset. 
C) can decline at some point in the service life of an asset if it requires a major overhaul. 
D) usually increases over time. 
E) remains constant over time.

Question 10

A BMW costs $35 000, its salvage value declines by declining-balance depreciation of 10% per year, and its maintenance costs are $100 in the first year and go up by $500 a year. Mary and Tom both like to drive BMWs. Mary trades her car in for a new model every year, whereas Tom keeps his until it reaches its economic life, then trades it in. Mary and Tom both have MARRs of 5%. How much more does Mary pay for her car per year, on average, than Tom?

Accepted Answer

A) They each pay the same. 
B) $569 
C) $615 
D) $769 
E) $869 
A) They each pay the same. 
B) $569 
C) $615 
D) $769 
E) $869

Question 11

If the interest rate is 10%, the depreciation rate of an asset is 10%, its service life is 10 years and its first cost is $10 million then EAC(Capital)for a ten-year life is

Accepted Answer

A) $1.000 million. 
B) $1.060 million. 
C) $1.349 million. 
D) $1.409 million. 
E) $1.977 million. 
A) $1.000 million. 
B) $1.060 million. 
C) $1.349 million. 
D) $1.409 million. 
E) $1.977 million.

Question 12

TRINITY Ltd. produces different pieces of furniture. A set of electric drills used in the production of furniture wears out rapidly, after which the firm scraps them. Calculate the equivalent annual cost (capital costs)of a set of electric drills if the firm buys the set for $4 500 and uses it for 5 years. Assume an annual interest rate of 8%.

Accepted Answer

A) $900 
B) $1 082 
C) $1 127 
D) $1 206 
E) $1 284 
A) $900 
B) $1 082 
C) $1 127 
D) $1 206 
E) $1 284

Question 13

What is sunk cost? Explain how it affects replacement decisions.

Accepted Answer

Sunk cost is the unrecoverable portion o

Question 14

A replacement study showed that the components of the total costs of an asset are as follows:   What is the economic life of an asset?

Accepted Answer

A) 7 years 
B) 7.5 years 
C) 8 years 
D) 9 years 
E) 12 years 
A) 7 years 
B) 7.5 years 
C) 8 years 
D) 9 years 
E) 12 years

Question 15

A new computer costs $4 000. It depreciates at 15% annually. The computer maintenance costs are $200 in the first year increasing by 50% per year thereafter. Calculate the EAC over the first five years of the computer's life, assuming a 20% interest rate. What is the economic life of the computer?

Accepted Answer

The following table summarizes all calcu

Question 16

What is the equivalent annual cost (EAC)?

Accepted Answer

A) annual cost of the initial investment in an asset spread over its economic life 
B) average annual cost of owning and operating an asset over its economic life 
C) the market cost of replacing the service provided by an asset 
D) the sum of the asset's depreciation and its operating costs in any given year 
E) the difference between the profits generated by an asset and the cost of operating it 
A) annual cost of the initial investment in an asset spread over its economic life 
B) average annual cost of owning and operating an asset over its economic life 
C) the market cost of replacing the service provided by an asset 
D) the sum of the asset's depreciation and its operating costs in any given year 
E) the difference between the profits generated by an asset and the cost of operating it

Question 17

What is the economic life of an asset?

Accepted Answer

A) the service life that accounts for the costs of an asset replacement 
B) the service life that minimizes the marginal cost of an asset 
C) the service life that maximizes revenues generated by an asset 
D) the service life that minimizes the average cost of an asset over time 
E) the service life that minimizes the cost of replacing the asset 
A) the service life that accounts for the costs of an asset replacement 
B) the service life that minimizes the marginal cost of an asset 
C) the service life that maximizes revenues generated by an asset 
D) the service life that minimizes the average cost of an asset over time 
E) the service life that minimizes the cost of replacing the asset

Question 18

Capital costs are usually

Accepted Answer

A) variable costs that directly depend on the level of production. 
B) fixed costs that do not directly depend on the level of production. 
C) negligible compared with operating costs. 
D) the most important factor in determining the economic life of an asset. 
E) costs of administrative overhead. 
A) variable costs that directly depend on the level of production. 
B) fixed costs that do not directly depend on the level of production. 
C) negligible compared with operating costs. 
D) the most important factor in determining the economic life of an asset. 
E) costs of administrative overhead.

Question 19

A three-year-old small crane is being considered for early replacement. Its current market value is $13 000. Estimated future market values and annual operating costs for the next five years are given in the following table:
   What is the economic life for this crane if the interest rate is 10% per year?

Accepted Answer

In order to find the economic life, it i

Question 20

If the challenger is different from the defender, and the challenger does not repeat, what should one do to make an educated decision about replacement?

Accepted Answer

A) Compute the economic life and the associated EAC of all the challengers. 
B) Compute the EAC of the remaining economic life of the defender. 
C) Keep the defender. 
D) Replace the defender by the challenger immediately. 
E) Structure the problem as a set of mutually exclusive alternatives. 
A) Compute the economic life and the associated EAC of all the challengers. 
B) Compute the EAC of the remaining economic life of the defender. 
C) Keep the defender. 
D) Replace the defender by the challenger immediately. 
E) Structure the problem as a set of mutually exclusive alternatives.

This table gives the data relevant to a replacement decision: What is the EAC (Capital Costs)for year 3 at the MARR of 10%?

If it is said that the economic life of a challenger is four years it means that

Which of the following can be treated as a part of installation costs?

Which of the following can be called the challenger?

What asset will most likely contain sunk cost?

Capital cost per period

If the interest rate is 10%, the depreciation rate of an asset is 10%, its service life is 10 years and its first cost is $10 million then EAC(Capital)for a ten-year life is

What is sunk cost? Explain how it affects replacement decisions.

A replacement study showed that the components of the total costs of an asset are as follows: What is the economic life of an asset?

A new computer costs $4 000. It depreciates at 15% annually. The computer maintenance costs are $200 in the first year increasing by 50% per year thereafter. Calculate the EAC over the first five years of the computer's life, assuming a 20% interest rate. What is the economic life of the computer?

What is the equivalent annual cost (EAC)?

What is the economic life of an asset?

Capital costs are usually

If the challenger is different from the defender, and the challenger does not repeat, what should one do to make an educated decision about replacement?

Engineering Decision Making

Time Value of Money

Cash Flow Analysis

Comparison Methods: Part I

Comparison Methods: Part Ii

Financial Accounting and Business Plans

Taxes

Inflation

Public Sector Decision Making

Project Management

Dealing With Uncertainty and Risk

Filters

Exam 7: Replacement Decisions

This table gives the data relevant to a replacement decision: What is the EAC (Capital Costs)for year 3 at the MARR of 10%?

If it is said that the economic life of a challenger is four years it means that

Which of the following can be treated as a part of installation costs?

Which of the following can be called the challenger?

What asset will most likely contain sunk cost?

Capital cost per period

If the interest rate is 10%, the depreciation rate of an asset is 10%, its service life is 10 years and its first cost is $10 million then EAC(Capital)for a ten-year life is

What is sunk cost? Explain how it affects replacement decisions.

A replacement study showed that the components of the total costs of an asset are as follows: What is the economic life of an asset?

A new computer costs $4 000. It depreciates at 15% annually. The computer maintenance costs are $200 in the first year increasing by 50% per year thereafter. Calculate the EAC over the first five years of the computer's life, assuming a 20% interest rate. What is the economic life of the computer?

What is the equivalent annual cost (EAC)?

What is the economic life of an asset?

Capital costs are usually

If the challenger is different from the defender, and the challenger does not repeat, what should one do to make an educated decision about replacement?

Engineering Decision Making

Time Value of Money

Cash Flow Analysis

Comparison Methods: Part I

Comparison Methods: Part Ii

Financial Accounting and Business Plans

Taxes

Inflation

Public Sector Decision Making

Project Management

Dealing With Uncertainty and Risk

Filters