Question

A project with a life of 10 has an initial fixed asset investment of $20,160, an initial NWC investment of $1,920, and an annual OCF of –$30,720. The fixed asset is fully depreciated over the life of the project and has no salvage value.

  

If the required return is 11 percent, what is the project's equivalent annual cost, or EAC?

• $-36,072.12

• $-29,201.24

• $-34,354.40

• $-20,232.10

• $-32,636.68

Please show work

Answer 1

Correct Option D i.e. $-20,232.10
Year	Cash Flow	PV factor @ 11%	Present Value
0	-22080	1	-22080.00
1	-30720	0.900901	-27675.68
2	-30720	0.811622	-24933.04
3	-30720	0.731191	-22462.20
4	-30720	0.658731	-20236.22
5	-30720	0.593451	-18230.82
6	-30720	0.534641	-16424.17
7	-30720	0.481658	-14796.55
8	-30720	0.433926	-13330.22
9	-30720	0.390925	-12009.21
10	-28800	0.352184	-10142.91
Net Present Value		-202321.01
Equivalent Annual Cost	-20232.10	(-202321/10)

answered by: anonymous