Asset Management Managing Asset Lifecycles 3

Question 1

An asset manager notices rising corrective maintenance costs and declining output on aging equipment. Which lifecycle decision framework should be applied?

Accepted Answer

Repair vs. replace analysis

Answer

Repair vs. replace analysis weighs the cost of continued maintenance against the cost and benefits of replacement to determine the economically optimal choice.

Question 2

What is 'economic life' of an asset?

Accepted Answer

The period over which the asset minimizes total average annual cost

Answer

Economic life ends when rising maintenance costs plus declining efficiency make replacement cheaper than continued operation, minimizing total average annual cost.

Question 3

Which disposal method typically yields the highest financial return for a retired asset?

Accepted Answer

Sale on the secondary market

Answer

Selling on the secondary market captures the asset's remaining market value, which generally exceeds scrap value or trade-in credit.

Question 4

Under GAAP, when is a gain or loss on asset disposal recognized?

Accepted Answer

At the time the asset is sold or retired

Answer

GAAP requires immediate recognition of the difference between proceeds and net book value at the point of sale or retirement.

Question 5

A preventive maintenance program is BEST described as:

Accepted Answer

Scheduled servicing to prevent failures before they occur

Answer

Preventive maintenance uses time- or usage-based schedules to service assets before failures occur, reducing unplanned downtime.

Asset Management Practice Test

Asset Management Practice Test

Asset Management Managing Asset Lifecycles 3