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November 5, 2015 at 2:46 pm
Hi Mr. Moffat,
I did not get the difference between the NPV ($72.972) and the EAC ($44.878) replacing the machine every 2 years for ever.
And what figure guide us to the decision is comparing the NPV of $72.972 and $87.101 or the EAC of $44.878 and $38.152.
Thanks in advance Sir.
John Moffat says
November 5, 2015 at 10:13 pm
I am afraid that you are going to have to watch the lecture again, because I do explain this in the lecture.
We can only compare the EAC’s when it is a replacement decision – it is not logical to try and compare an NPV that repeats every 2 years with one that repeats every 3 years.
November 6, 2015 at 10:14 am
Thanks Sir. ?
November 6, 2015 at 5:44 pm
You are welcome
May 13, 2014 at 12:38 pm
Can we do 1st year replacement and see whats the results, then try and 2nd and 3rd, this we choose the best?
May 13, 2014 at 12:39 pm
Of course. That is what I do in the lecture – it doesn’t matter which order you do them in!
July 21, 2013 at 5:11 pm
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?
July 21, 2013 at 5:39 pm
You can certainly do it that way and you will get full marks. However the examiner has never required you specifically to do it that way, whereas he has in the past specifically asked you to calculate the equivalent annual cost. So there is not really any point in learning two ways.
July 21, 2013 at 5:40 pm
June 28, 2013 at 11:36 pm
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
June 29, 2013 at 12:15 pm
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.
July 4, 2013 at 11:42 pm
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
November 7, 2012 at 4:09 pm
john always makes me understand by the way he lectures
Rana Mateen says
September 24, 2012 at 9:35 pm
jhonmoffat always great
March 11, 2012 at 4:59 am
ok sir….thanks for taking time to reply……..
March 10, 2012 at 7:41 am
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
March 10, 2012 at 3:18 pm
@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.
March 6, 2012 at 10:40 am
very helpful. Thank you opentuition.
February 21, 2012 at 3:44 pm
great lecture i love teachers of opentuition
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