Question

A project with a life of 8 has an initial fixed asset investment of $27,300, an initial NWC investment of $2,600, and an annual OCF of –$41,600. The fixed asset is fully depreciated over the life of the project and has no salvage value.

  

If the required return is 15 percent, what is the project's equivalent annual cost, or EAC?

Multiple Choice

• $-45,670.12

• $-40,862.74

• $-26,965.33

• $-48,073.81

• $-50,477.50

Answer 1

Solution :

The project's equivalent annual cost, or EAC = $ - 48,073.81

Thus the solution is Option 4 = $ - 48,073.81

Please find the attached screenshot of the excel sheet containing the detailed calculation for the above solution.