Question

Assume a machine costs $108,000 and lasts seven years before it is replaced. The operating cost is $17,600 a year. Ignore taxes. What is the equivalent annual cost if the required rate of return is 14 percent? (Hint: the EAC should account for both initial investment and annual operating costs)

$33,218.72 |
||

$35,610.58 |
||

$38,127.49 |
||

$42,784.78 |
||

$46,412.03 |

Answer #1

Present value of outflows=cash outflows*Present value of discounting factor(rate%,time period)

=108000+17600/1.14+17600/1.14^2+.........17600/1.14^7

=108000+17600[1/1.14+1/1.14^2+1/1.14^3+............+1/1.14^7]

=108000+(17600*4.288304839)

which is equal to

=$183,474,1652(Approx)

Hence equivalent annual cost=[required rate*Present value of outflows]/[1-(1+rate)^-time period]

=[$183,474,1652*0.14]/[1-(1.14)^-7]

=25686.38313/[1-0.399637322]

=25686.38313/0.600362678

which is equal to

=**$42784.78(Approx).**

Assume a machine costs $108,000 and lasts six years before it is
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percent? (Hint: the EAC should account for both initial investment
and annual operating costs)

Assume a machine costs $1,230,000 and lasts six years before it
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What is the equivalent annual cost if the required rate of return
is 13 percent? (Hint: the EAC should account for both initial
investment and annual operating costs)
$382,188.48
$376,410.27
$364,294.60
$357,412.78
$301,416.83

Assume a machine costs $1,530,000 and lasts eight years before
it is replaced. The operating cost is $115,000 a year. Ignore
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return is 16 percent? (Hint: the EAC should account for both
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$467,243.12
$485,642.76
$509,748.77
$526,411.32
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Assume an equipment costs $396,000 and lasts five years before
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What is the equivalent annual cost if the required rate of return
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A project will produce an operating cash flow of $358,000 a year
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received at the end of the project. The project requires $78,000 of
net working capital that will be fully recovered when the project
ends. What is the net present value of the project if the required
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$237,613
$251,159
$274,300
$290,184
$309,756...

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options:
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Annual operation and maintenance costs are $5,000 for Machine A and
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at the end of its useful life. If the required return is 17.75% for
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