All of the Following Are Relevant to the Decision to Replace

question 88

Multiple Choice

All of the following are relevant to the decision to replace equipment EXCEPT the:

• A)cost of new equipment.
• B)selling price of old equipment.
• C)future maintenance costs of old equipment.
• D)cost of old equipment.

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Definitions:

Expected Perpetual EBIT

The forecasted continuous earnings before interest and taxes that a company expects to generate over an indefinite future period, assuming a steady state of operations.

Unlevered Cost of Capital

The cost of capital for a company that has no debt, representing its cost of equity.

Financial Leverage

The use of borrowed funds to increase the potential return of an investment.

All Equity Firm

A business that is financed entirely through equity capital, with no debt or borrowed funds.