Multiple Choice Questions
1. In conducting a replacement study, all of the following are correct viewpoints for the analyst except:
(a) Consultant€™s
(b) Owner€™s
(c) Outsider€™s
(d) Nonowner€™s
2. A sunk cost is the difference between:
(a) The first cost and the salvage value
(b) The market value and the salvage value
(c) The first cost and the market value
(d) The book value and the market value
3. A truck was purchased 3 years ago for $45,000 and can be sold today for $24,000. The operating costs are $9000 per year, and it is expected to last 4 more years with a $5000 salvage value. A new truck, which will perform that same service, can be purchased for $50,000, and it will have a life of 10 years with operating costs of $28,000 per year and a $10,000 salvage value. The value that should be used as P for the presently owned vehicle in a replacement study is:
(a) $45,000
(b) $5000
(c) $50,000
(d) $24,000
4. The economic service life of an asset with the PW and AW values on the next page is:
(a) 1 year
(b) 2 years
(c) 3 years
(d) 4 years
5. The cost characteristics of a CO testing machine at Dytran Instruments are shown below. The cost of a new tester is $100,000. The equation for determining the AW of keeping the tester for 2 years is:
(a) AW = €“ 100,000(A/P,i,8) €“ [42,000(P/F,i,1) + 47,000(P/F,i,2)](A/P,i,8) + 40,000(A/F,i, 8)
(b) AW = €“100,000(A/P,i,2) €“ [42,000(P/F,i,1) + 47,000(P/F,i,2)](A/P,i,2) + 40,000(A/F,i,2)
(c) AW = €“100,000(A/P, i, 2) €“ 47,000 + 40,000(A/F, i, 2)
(d) AW = €“100,000(A/P, i, 2) €“ 42,000 + 40,000(A/F, i,2)

Machine Age, Years M80 Costs, per Year Salvage Value at End of Year, $ 60,000 40,000 31,000 24,000 15,000 10,000 10,000 10,000 -42,000 -47,000 -49,000 -50,000 52,000 -54,000 -63,000 -67,000