1. 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

2. 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

3. 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

4. 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

5. 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

6. 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