Question

A decrease in a project's _________ will increase the acceptability of the project.

• sunk costs

• salvage value

• depreciation tax shield

• equivalent annual cost

• accounts payable requirement

The equivalent annual cost does not consider ________________.

• required rate of return

• operating costs

• need for replacement

• economic life

• costs of research conducted to identify equipment choices

Answer 1

A decrease in a project's equivalent annual cost will increase the acceptability of the project.

• sunk costs - Has no effect on the acceptability of the project

• salvage value -decreases the acceptability of the project.

• depreciation tax shield - decreases the acceptability of the project.

• accounts payable requirement - decreases the acceptability of the project.

The equivalent annual cost does not consider costs of research conducted to identify equipment choices. This is a sunk cost.

The equivalent annual cost consider the following:

• required rate of return

• operating costs

• need for replacement

• economic life