Question

I'm looking to determine the equivalent uniform annual cost given the following information:

initial investment $1,390,000

operating costs $45,000/year

maintenance costs $15,000/year and increasing by $1,000 each year

salvage $69,500

lifetime 12 years

MARR 12%

Please explain. I'm comparing this information to similar information provided for a different piece of equipment. Thank you!

Answer 1

We have following information

Initial investment $1,390,000

Operating costs $45,000/year

Maintenance costs $15,000/year and increasing by $1,000 each year

Salvage $69,500

Lifetime 12 years

MARR 12%

The equivalent uniform annual cost (EUAC) can be calculated in following manner

EUAC = $1,390,000 (A/P, 12%, 12) + $45,000 + $15,000 + $1000 (A/G, 12%, 12) - $69,500 (A/F, 12%, 12)

= $1,390,000 * 0.1614 + $45,000 + $15,000 + $1000 * 4.190 - $69,500 * 0.0414

(Refer compounded interest table to find out the values of A/P, A/G, A/F at 12% interest rate and 12 years’ time period))

= $224,346 + $45,000 + $15,000 + $4,190 - $2,877.30

= $285,658.70

The equivalent uniform annual cost (EUAC) is $285,658.70