Discussion
Consider the following statements about replacement analysis.
1. The defender's original first cost is irrelevant 2. The economic service life is where total annual cost is least 3. A fully depreciated asset should always be replaced
Answer: D
Correct answer: 1 and 2 only are correct
Statements 1 and 2 are correct: the original first cost is sunk, and the economic service life is where the total annual cost is least. Statement 3 confuses accounting with economics - depreciation is a bookkeeping allocation, and an asset fully written down may still be the cheapest way to do the job.
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