Discussion
An asset's annual costs are 19 000 at a 3-year life, 17 500 at 4 years, 17 200 at 5 years and 17 800 at 6 years. Its economic service life is
Answer: D
Correct answer: 5 years
The annual costs fall from 19,000 to 17,500 to 17,200 and then rise to 17,800, so the minimum is at five years. Note the shape: the curve is quite flat near the bottom, only 300 separating four years from five, which means the exact life matters much less than being somewhere near it.
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