Engineering Board Exam Reviewer · Replacement Analysis · easy
A machine bought years ago has a book value of P150,000 but could be sold today for only P90,000. What value should be used as the defender's investment in a replacement analysis?
- P150,000, its book value
- P120,000, the average of the two
- P0, because the machine is already owned
- P90,000, its current market value
Answer
D. P90,000, its current market value
Solution
Past costs are sunk. The defender's investment is what is given up by keeping it: its current market value, P90,000.
More Replacement Analysis questions
- Using the challenger from the earlier problems (EUAC about P52,537), what market value of the defender (salvage P20,000 after 3 years…
- A machine can be sold now for P60,000 or for P48,000 one year from now. Operating cost for the coming year is P15,000. At 10% interest…
- The defender has an EUAC of about P52,381 and the challenger about P52,537 (from the two preceding problems, 12% interest). What is the…
- A new machine (the challenger) costs P250,000, lasts 10 years, has a salvage value of P30,000, and annual operating costs of P10,000. Find…
- An existing machine (the defender) has a market value of P80,000, 3 years of remaining life, a salvage value of P20,000 at the end of that…