Question

Assume the NPV for a machine's total cost over 8 years is -$5,000. If the discount...

Assume the NPV for a machine's total cost over 8 years is -$5,000. If the discount rate is 12%, what will be the equivalent annual cost (EAC) in this case?

Group of answer choices

A) -$937.22

B) -$1,006.51

C) -$1,387.05

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Homework Answers

Answer #1
Equivalent Annual Cost =NPV × r/1 − (1 + r)^-n
                           = -$5000 * 12% / 1-(1.12)^-8
                           = -$600/1-0.40388
                           = -$600/0.5961
                           = -$1006.51
Option B is the correct answer.
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