True or False In replacement analysis, the economic useful life is the value of n that...

True or False

In replacement analysis, the economic useful life is the value of n that maximizes the EUAC.

The essence of the replacement question is not deciding exactly when to replace the equipment, but rather whether you should replace the equipment now or later.

When we have more than one challenger, we normally compare all of them to the defender at once to pick the best option.

Expert Solution

In replacement analysis, you calculate the Equivalent Uniform Annual Cost ( EUAC) for each value of the useful life 'n', the number of years at which the EUAC is minimized is the economic useful life. Hence, in replacement analysis, the economic useful life is the value of n that minimizes the EUAC. The answer is false.

In the replacement analysis, in case of high cost equipment, the decision would be whether to replace it immediately or later. In order to replace an item, whether to wait till its failure or replacing at an early age with higher cost would be considered. Hence, the essence of the replacement question is not deciding exactly when to replace the equipment, but rather whether you should replace the equipment now or later. The answer is true.

When we have more than one challenger, we normally compare all of them to the defender at once to pick the best option. The answer is true.

Rahul Sunny answered 1 year ago

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