Question: What Is Minimum Cost Life Or Economic Life?

What do you understand by replacement analysis?

The study of the planning, rationale and execution of the effective replacement of an existing asset, such as a roof or a boiler, or a group of assets, with a new asset(s).

The scope of the analysis includes, but not limited to some of the following: The timing of the replacement..

What is economic service life?

Economic service life is defined as the period of useful life that minimizes the equivalent annual cost of an asset. Normally, to determine the equivalent annual cost of an asset, two types of costs are considered.

What is the economic value of a human being?

Today, the U.S. Office of Management and Budget puts the value of a human life in the range of $7 million to $9 million.

What is the basic economic problem?

The fundamental economic problem is the issue of scarcity and how best to produce and distribute these scare resources. Scarcity means there is a finite supply of goods and raw materials. Finite resources mean they are limited and can run out.

How does a good economy affect me?

For the general public, the main impact is the cost of living. The economy has a direct impact on our spending ability. An economic recession generally leads to an increased cost of living. … The countries currency is also generally affected during a recession, which contributes to inflation of prices.

What is asset useful life?

The useful life of an asset is an accounting estimate of the number of years it is likely to remain in service for the purpose of cost-effective revenue generation. The Internal Revenue Service (IRS) employs useful life estimates to determine the amount of time during which an asset can be depreciated.

What is a scrap value?

Scrap value is the worth of a physical asset’s individual components when the asset itself is deemed no longer usable. The individual components, known as scrap, are worth something if they can be put to other uses.

What is the useful life of a vehicle?

Consumer Reports (www.consumerreports.org/) says the average life expectancy of a new vehicle these days is around 8 years or 150,000 miles. Of course, some well-built vehicles can go 15 years and 300,000, if properly maintained.

What is the minimum cost life or economic life?

The time that would do that is known as its economic service life (also called its minimum cost life) and it is found by calculating the asset’s annual worth over various time periods and selecting the time that corresponds with the lowest AW value.

What is the most important in human economic life?

From an individual perspective, economics frames many choices we have to make about work, leisure, consumption and how much to save. … Our lives are also influenced by macro-economic trends, such as inflation, interest rates and economic growth.

How do you find useful life?

The useful life of an asset include the age of the asset, frequency of use, and business environmental conditions. The IRS provides guidelines for estimating the useful lifespans of assets and the period over which depreciation of the asset may occur.

What is Challenger and Defender?

Capital Recovery with Return and Concept of Challenger and Defender. If an existing equipment is considered for replacement with a new equipment, then the existing equipment is known as the defender and the new equipment is known as challenger.

What economy means?

An economy is the large set of inter-related production and consumption activities that aid in determining how scarce resources are allocated. In an economy, the production and consumption of goods and services are used to fulfill the needs of those living and operating within it.

What is effective age in real estate?

Effective age is the age which reflects a true remaining life for the property, taking into account the typical life expectancy of buildings or equipment of its class and its usage. … Actual age or chronological age is defined as the age of a structure (usually in years) since the building was complete.

Is economic life the same as useful life?

Useful life refers to the amount of time an asset is expected to be functional and fit-for-purpose. … Also known as economic life or service life, useful life is usually measured in years, ending when the asset is unable to operate as required or can no longer be used to generate revenues.

How do you calculate economic service life?

The economic service life occurs at the minimum total EAC (The sum of CR and O&M). Example: Determine economic service life for i = 8%, equipment purchase price = $24,000, decline in salvage value = 20% / year, O&M cost = $3,000 for the first year, O&M increase = $1,000 /year. The minimum total EAC is in year 4.

What is the economic life of a vehicle?

Economic life is the period over which an entity expects to be able to use an asset, assuming a normal level of usage and preventive maintenance. Economic life can also refer to the number of units produced; for example, the economic life of a vehicle may be 100,000 miles, rather than three years.

What are the reasons for replacement?

Equipment are generally considered for replacement for the following reasons:(i) Deterioration: … (ii) Obsolescence: … (iii) Inadequacy: … (iv) Working Conditions: … (v) Economy: … (i) Technical Factors: … (ii) Financial/Cost Factors: … (iii) Tangible Factors:More items…

What economics means?

Economics is a social science concerned with the production, distribution, and consumption of goods and services. … Economics can generally be broken down into macroeconomics, which concentrates on the behavior of the economy as a whole, and microeconomics, which focuses on individual people and businesses.