OUTLINE QUESTIONS? NEWS? REMINDERS: EVALUATIONS PICTURE upload your favorite from this summer by TOMORROW NIGHT TEAM QUESTIONNAIRE FOR EXTRA CREDIT AND MY DATABASE HOMEWORK DUE TONIGHT LAST QUIZ TOMORROW CHAPTER 14 -REPLACEMENT

REPLACEMENT DECISIONS HOW DO YOU DECIDE WHEN TO GET RID OF YOUR OLD CAR, HOUSE, PC, etc. ? SAFETY UTILITY (NEW FEATURES) ECONOMIC CONSIDERATIONS STYLE JUST PLAIN TIRED OF IT

DEFINITIONS DEFENDER - EXISTING EQUIPMENT CHALLENGER - POTENTIAL REPLACEMENTS RELEVANT COST - CURRENT MARKET VALUE SUNK COST - PAST COST UNAFFECTED BY FUTURE DECISIONS (DO NOT CONSIDER) ECONOMIC SERVICE LIFE - THE PERIOD OF USEFUL LIFE THAT MINIMIZES THE EQUIVALENT ANNUAL COST OF OWNING AND OPERATING THE ASSET PLANNING HORIZON - SERVICE PERIOD REQUIRED BY THE DEFENDER AND A SUCCESSION OF CHALLENGERS

DEFINITIONS - CONTINUED CURRENT MARKET VALUE – WHAT SOMEONE IS WILLING TO PAY FOR AN ITEM REGARDLESS OF ANY SIDE DEALS TRADE IN ALLOWANCE – AMOUNT SUBTRACTED FROM A NEW ITEM YOU ARE BUYING FOR SURRENDERING AN OLD ITEM – DO NOT USE

DEFENDER -- CHALLENGER EVALUATE DEFENDER’S CASH FLOW AND CALCULATE THE PRESENT VALUE (CONSIDER SALVAGE AS AN OPPORTUNITY COST) EVALUATE THE CASH FLOW OF THE CHALLENGER BASED ON ITS COSTS SELECT THE OPTION WITH THE BETTER PRESENT VALUE OR ANNUAL EQUIVALENT

ECONOMIC SERVICE LIFE THE PERIOD OF USEFUL LIFE THAT MINIMIZES THE EQUIVALENT ANNUAL COST OF OWNING AND OPERATING THE ASSET ASSUMPTIONS: REPEATED REPLACEMENT WITH SIMILAR EQUIPMENT OVER AN INDEFINITE PERIOD