Question

A machine costs $150,000 has a life of 10 years, costs $2,500 per year in maintenance and has a salvage value of $30,000. At the end of years 4 and 8, it requires major servicing costing $20,000 and $10,000, respectively. At the end of year 5, it needs a major overhaul costing $45,000. What is its EUAC?

        a) 24, 695

        b) 26,112

        c) 27,113

        d) 35,987

SHOW YOUR WORK PLEASE !!

Answer 1

Initial cost = $150,000. Life of machine = 10 years. Annual cost = $2,500. Salvage value = $30,000. At the end of years 4 and 8, major cost are incurred at $20,000 and $10,000, respectively. At the end of year 5, it needs a major overhaul costing $45,000.

Present cost = 150,000 + 2500(P/A, 5%, 10) + 20000(P/F, 5%, 4) + 45000(P/F, 5%, 5) + 10000(P/F, 5%, 8) - 30000(P/F, 5%, 10)

= 150000 + 2500*7.721735 + 20000*(1+5%)^-4 + 45000*(1+5%)^-5 + 10000*(1+5%)^-8 - 30000*(1+5%)^-10

= $209,368

EUAC = $209,368*(A/P, 5%, 10) = $209,368*0.129505 = $27,114

Option C is correct.