Question

A 6-year project has an initial fixed asset investment of $42,000, an initial NWC investment of...

A 6-year project has an initial fixed asset investment of $42,000, an initial NWC investment of $4,000, and an annual OCF of -$64,000. The fixed asset is fully depreciated over the life of the project and has no salvage value.

  

Required:

If the required return is 19 percent, what is the project's equivalent annual cost, or EAC? (Do not round your intermediate calculations.)

Homework Answers

Answer #1
Year Cash flows PVF @19% Present value
0 -46000 1.000 -46000.00
1 -64000 0.840 -53781.51
2 -64000 0.706 -45194.55
3 -64000 0.593 -37978.61
4 -64000 0.499 -31914.80
5 -64000 0.419 -26819.16
6 -60000 0.352 -21128.54
Present value of Outflows -262817.17
Divide: Annuity factor f or 6 years at 19% 3.41
Equivalent Annual cost -77072.48
Note: Working capital invested is taken as investment outflow in Year-0
Note: Working capital released is taken as inflow in Year-6
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