Deck 13: Replacement Analysis

Question 1

An equipment cost $80,000 initially. The market value has been declining at the rate of $15,000 yearly. The O & M costs in year 1 were $10,000 and have been increasing by $2,000 from year 2. Determine the minimum cost life of this equipment for a MARR of 10 %.

A) 4 years
B) 2 year
C) 1 year
D) 5 years

Answer 1

1 year

Question 2

The O & M cost of an equipment is given in the table below. Determine the EUAC of this equipment in year 6.
Assume a MARR of 8%.
$$\begin{array} { | l | l | l | l | l | l | l | } \hline \text { Year } & 1 & 2 & 3 & 4 & 5 & 6 \\\hline \text { O\& M Cost } & \$ 8,000 & 7,500 & \$ 6,000 & \$ 5,500 & \$ 4,500 & 8,000 \\\hline\end{array}$$

A) $8,188.45
B) $9,149.87
C) 7,407.20
D) $7,168.52

Answer 2

7,407.20

Question 3

The EUAC of the challenger for an economic life of 5 years is $8,500. The marginal cost of the defender is provided in the table below. Determine when the defender should be replaced.
$$\begin{array} { | l | l | l | l | l | l | } \hline \text { Year } & 1 & 2 & 3 & 4 & 5 \\\hline \begin{array} { l } \text { Margiral } \\\text { Cost, } 5\end{array} & 7,500 & 8,000 & 8,500 & 9,000 & 9,500 \\\hline\end{array}$$

A) At the end of year 2
B) At the end of year 1
C) At the end of year 3
D) Never

Answer 3

At the end of year 3

Question 4

Determine the minimum cost life of an equipment for which the marginal costs are given in table below. Use an interest rate of 10%.
$$\begin{array} { | l | l | l | l | l | l | l | } \hline \text { Year } & 1 & 2 & 3 & 4 & 5 & 6 \\\hline \text { Margiral Cost, } \$ & 18,000 & 16,000 & 19,000 & 20,000 & 22,000 & 24,000 \\\hline\end{array}$$

A) 6 years
B) 4 years
C) 2 years
D) 3 years

Question 5

Case Study 13
A CNC machining center was purchased 6 years ago for $100,000. The current market value is $200,000, which will decline as follows over the next 5 years: $140,000, $130,000, $120,000, $100,000, and $80,000. The O & M costs are estimated to be $36,000 this year. These costs are expected to increase by $5,000 per year starting year 2. MARR = 10%

-The marginal cost for defender in year 2 is ____________.

A) $68,000
B) $65,000
C) $ 66,000
D) $56,000

Question 6

Case Study 13
A CNC machining center was purchased 6 years ago for $100,000. The current market value is $200,000, which will decline as follows over the next 5 years: $140,000, $130,000, $120,000, $100,000, and $80,000. The O & M costs are estimated to be $36,000 this year. These costs are expected to increase by $5,000 per year starting year 2. MARR = 10%

-The EUAC for defender in year 2 is ____________.

A) $81,642
B) $91,715
C) $85,182
D) $105,240

Question 7

Case Study 13
A CNC machining center was purchased 6 years ago for $100,000. The current market value is $200,000, which will decline as follows over the next 5 years: $140,000, $130,000, $120,000, $100,000, and $80,000. The O & M costs are estimated to be $36,000 this year. These costs are expected to increase by $5,000 per year starting year 2. MARR = 10%

-The foregone interest in year 4 is _______________.

A) $12,000
B) $8,000
C) $13,000
D) $14,000

Question 8

Obsolescence occurs when the technology used in an equipment has been surpassed by a better and newer technology.

Question 9

Marginal cost is the cost at which an asset has the minimum cost life.

Question 10

One of the replacement rule is when the defender's marginal cost becomes greater than the challenger's minimum EUAC, then replace the defender.

Question 11

Given the marginal cost data in the table below for a defender, it is economical to replace the defender in year 1 if EUAC of challenger is $12,500.
$$\begin{array} { | c | c | } \hline \text { Year } & \text { Margiral cost of defender } \\\hline 1 & \$ 13,000 \\\hline 2 & \$ 12,000 \\\hline 3 & \$ 11,000 \\\hline 4 & \$ 16,000 \\\hline 5 & \$ 15,000 \\\hline\end{array}$$