Question

Assume an equipment costs $396,000 and lasts five years before it is replaced. The operating cost...

Assume an equipment costs $396,000 and lasts five years before it is replaced. The operating cost is $60,500 a year. Ignore taxes. What is the equivalent annual cost if the required rate of return is 12.5 percent? (Hint: Find the NPV of machine cost and annual cost, then estimate the EAC)

Business   Finance   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1
Year Cash Flow Discountig Factor
[1/(1.125^period)]		 PV of cash flows
(cash flow*discounting factor)
0 -396000 1 -396000
1 -60500 0.970873786 -58737.86408
2 -60500 0.942595909 -57027.0525
3 -60500 0.915141659 -55366.07039
4 -60500 0.888487048 -53753.4664
5 -60500 0.862608784 -52187.83146
NPV=
Sum of PVs		 -673072.2848
NPV -673072.2848
r 0.125
n 5
EAC = [NPV*r]/[1-{(1+r)^-n}]
= [-673072.2848*0.125]/[1-{(1+0.125)^-5}]
= [-84134]/[0.44507]
= -189035.4326
0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Assume a machine costs $108,000 and lasts six years before it is replaced. The operating cost...
Assume a machine costs $108,000 and lasts six years before it is replaced. The operating cost is $17,200 a year. Ignore taxes. What is the equivalent annual cost if the required rate of return is 15 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 is replaced. The operating cost...
Assume a machine costs $1,230,000 and lasts six years before it is replaced. The operating cost is $74,500 a year. Ignore taxes. 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 $108,000 and lasts seven years before it is replaced. The operating cost...
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
Assume a machine costs $1,530,000 and lasts eight years before it is replaced. The operating cost...
Assume a machine costs $1,530,000 and lasts eight years before it is replaced. The operating cost is $115,000 a year. Ignore taxes. What is the equivalent annual cost if the required rate of return is 16 percent? (Hint: the EAC should account for both initial investment and annual operating costs) $467,243.12 $485,642.76 $509,748.77 $526,411.32 $543,577.98
A project will produce an operating cash flow of $358,000 a year for four years. The...
A project will produce an operating cash flow of $358,000 a year for four years. The initial cash outlay for equipment will be $785,000. The net aftertax salvage value of $42,000 will be 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 rate of return is 14 percent? $237,613 $251,159 $274,300 $290,184 $309,756...
The equipment below is required for your business. Assume it will be replaced as it wears...
The equipment below is required for your business. Assume it will be replaced as it wears out. The required return is 15%. Ignore taxes. Machine: Initial cost = $200,000, Operating Cost per year = 15,000, Life = 8 yrs. What is the equivalent annual cost (EAC) of machine? Select one: A. -$301,664 B. -$201,676 C. -$48,163 D. -$59,570 E. -$22,437
The initial cost of one customized machine is $675,000 with an annual operating cost of $14,800,...
The initial cost of one customized machine is $675,000 with an annual operating cost of $14,800, and a life of 4 years. The machine will be worthless and replaced at the end of its life. What is the equivalent annual cost of this machine if the required rate of return is 14.5 percent and we ignore taxes?
Riverside Inc. uses specialized machines to make its product. One machine costs $189,000 and lasts 7...
Riverside Inc. uses specialized machines to make its product. One machine costs $189,000 and lasts 7 years before it needs to be replaced. The annual operating cost per machine is $23,800. What is the equivalent annual annuity cost of the machine if the required rate of return is 8%? options: -$48,313 -$60,101 -$63,909 -$61,352 -$62,622
A $15,000 car that lasts five years with an average annual operating cost of $8,000, or...
A $15,000 car that lasts five years with an average annual operating cost of $8,000, or a $20,000 car that lasts six years with an average annual operating cost of $7,000. The interest rate is 8 percent for both options. Which option should you go for?
Machine A lasts 5 years and Machine B lasts 10 years. Machine A costs $6,000 and...
Machine A lasts 5 years and Machine B lasts 10 years. Machine A costs $6,000 and Machine B costs $9,000. The salvage value of Machine A is $4,000 and the salvage value of Machine B is $2,200. Annual operation and maintenance costs are $5,000 for Machine A and $3,900 for Machine B. Both machines can be purchased in the future at the same price as today, and their salvage values and annual costs will remain as they are now. Your...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT