Comments

  1. Avatar of nkmile64 says

    A very good lecture indeed!

    I understand that you mentioned there’s still another method of dealing with asset replacement in mutually exclusive projects with unequal lives. Would that be the replacement chain method using the shortest common multiple of the alternatives’ lifes? And if so, is it included in the Dec 2013 Syllabus or there’s no point bothering with it?

  2. avatar says

    Sir, some text books solved the problem without using the maintenance cost in year one, and i don’t know if that is correct and beside there was no assumption stated . Please kindly expatiate on this issue

    • Avatar of John Moffat says

      I think you might be referring to an example in the Kaplan book. If you are then it specifically says that the maintenance is paid in the following year.
      There is no specific issue involved – as always with operating cash flows, you assume that the first years cost is payable in one years time i.e. at time 1, unless you are told differently.

      • avatar says

        Thank u Prof. . U are a wonderful teacher
        i wish u were the teacher for all the courses ,
        cos your passion for teaching makes us to understand the course
        the more.

  3. Avatar of faizan1185 says

    sir.in KAPLAN BOOK.. they say that and i quote…”note that the asset is only maintained at the year end if it isto be kept for a further year i.e ther are no maintaince cost in the year of replacement…”… but u have included running cost in year of disposal or scrap….plese guide me..im bit confused……………………reply promptly…..i will be obliged

    • Avatar of John Moffat says

      @faizan1185, Your quote is not a general rule – it is just part of that particular question.

      You will always have running costs in the year of replacement (otherwise the machine will not be working in the final year!) and you will usually also have maintenance costs in the final year as well.

      Think about a car – if you replace it at the end of a year then you will still have to pay for running it during that year and for repairing (maintenance) during that year!

      Always assume this unless the question says differently. The question you are referring to in Kaplan specifically tells you to do differently (although it is unusual for it to say that) and so you do what you are told.

Leave a Reply