Radial Arm Drill

Radial arm drills have been manufactured since the early 20th century. Company A, a metalworking manufacturer, has a radial arm drill that was purchased at auction in the 1990s for $22,000.

If Company A had to replace the drill, how much could it cost?

THE CORRECT ANSWERS

REPLACEMENT COST NEW:
$15,000
$26,000
$75,000
USED MARKET VALUE:
$15,000
$26,000
$75,000
USED LIQUIDATION/AUCTION VALUE:
$15,000
$26,000
$75,000

Turret Lathe

Type #4A machine was built in 1975. It has a 12" hole thru and a 25" swing. Turret lathes have not been manufactured since the 1980s. Even though they are now obsolete, many are still hard at work in manufacturing facilities. Company B relies heavily on one it initially purchased for $75,000, but hasn’t considered what might happen if the lathe needs to be replaced with a new machine that serves the same function.

What could be the cost of a new machine?

INCORRECT

This value represents the used market value of a turret lathe. The price of a new machine to replace the function of this piece of equipment could be over four times as much or $250,000.

CORRECT

Because the turret lathe is obsolete, a new machine may need to be purchased to replace the function of the old machine. This is the approximate cost of a new Computer Numerically Controlled (CNC) machine necessary to replace the function of the obsolete lathe, including applicable taxes, delivery, installation and training.

INCORRECT

This value represents the liquidation/auction value of a used turret lathe assuming one can be found. The price of a new machine to replace the function of this piece of equipment could be 10 times as much or $250,000.

CNC Lathe

Company C is leasing a $200,000 CNC machine. The machine is damaged in a fire.

Is Company C responsible for the replacement cost of this machine?

INCORRECT

Parties are free to negotiate who will bear the risk of loss. Look to the terms of the lease to see who assumes the risk of loss.

CORRECT

If the terms of the lease place the risk of loss on Company C, then Company C is responsible for replacing damaged equipment. It is important for Company C to understand its responsibilities prior to a loss.

INCORRECT

Parties are free to negotiate who bear the risk of loss. Look to the terms of the lease to see who assumes the risk of loss.

Generic Equipment

Ten years ago, Company D purchased a key piece of manufacturing equipment for $500,000. Due to inflation, the price of the equipment increases every year.

Assuming that the price for this type of equipment increased by 15% in 10 years, what would be the cost of a new machine today?

INCORRECT

This is the original purchase price. Once inflation is accounted for, the cost of a new machine would be $575,000.

INCORRECT

This value may represent the used market value of this machine. Once inflation is accounted for, the cost of a new machine would be $575,000.

CORRECT

Because this value takes into account the inflation in price of 15% over 10 years, it reflects the cost of a new machine.