| A project with a life of 11 has an initial fixed asset investment of $35,280, an initial NWC investment of $3,360, and an annual OCF of –$53,760. The fixed asset is fully depreciated over the life of the project and has no salvage value. |
| If the required return is 11 percent, what is the project's equivalent annual cost, or EAC? |
| Year | Cashflows | PVF at 11% | Present value | |
| 0 | -38640 | 1 | -38640 | |
| 1 | -53760 | 0.900901 | -48432.4 | |
| 2 | -53760 | 0.811622 | -43632.8 | |
| 3 | -53760 | 0.731191 | -39308.8 | |
| 4 | -53760 | 0.658731 | -35413.4 | |
| 5 | -53760 | 0.593451 | -31903.9 | |
| 6 | -53760 | 0.534641 | -28742.3 | |
| 7 | -53760 | 0.481658 | -25894 | |
| 8 | -53760 | 0.433926 | -23327.9 | |
| 9 | -53760 | 0.390925 | -21016.1 | |
| 10 | -53760 | 0.352184 | -18933.4 | |
| 11 | -50400 | 0.317283 | -15991.1 | |
| Present value of outflows | -371236 | |||
| Divide: Annuity for 11 years | 6.20652 | |||
| Equivalent Annual ccost | -59813.9 | |||
Get Answers For Free
Most questions answered within 1 hours.