Question

What is the equivalent annual cost (EAC) of a machine that has an expected economic life...

What is the equivalent annual cost (EAC) of a machine that has an expected economic life of three years, if the cost of the machine is $25 million and it provides cash inflows of $6 million for each of the next 3 years? The discount rate is 10 percent.

a. $18.55 million

b. $19.78 million

c. $17.18 million

d. $16.05 million

e. $14.60 million

Business   Finance   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1
Cost of machine                     25.00
PVAF(10%,3years) 1/(1.10)^1 + 1/(1.10)^2 + 1/(1.10)^3
2.48685
Present value of cashflow = 6*2.48685
14.9211
EAC = (Cost of machine+total present value of annual cost ) / PVAF
(25 + 14.9211)/2.48685
                    16.05

Answer is Option D) 16.05 million

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
If the interest rate is 8%, what is the Equivalent Annual Cost (EAC) of the following...
If the interest rate is 8%, what is the Equivalent Annual Cost (EAC) of the following machine: Cost: $8,000 Life: 5 years Annual cost to operate: $2,000 Answer to 2 decimal places, for example 970.12
What is the annual equivalent cost of a machine that costs $8,500 and has maintenance fees...
What is the annual equivalent cost of a machine that costs $8,500 and has maintenance fees of $250 in years 1 through 6 if this machine last 6 years and the real discount rate is 5%?
Determine the equivalent uniform annual cost of a machine costing $4,000 with a life of 10...
Determine the equivalent uniform annual cost of a machine costing $4,000 with a life of 10 years and a salvage value of $300 (at year 10). Its operating expenses are $500 per years and your cost of capital is 12%. a. $1208 b. $1191 c.$930 d.$900 e. None of these are correct.
You are operating an old machine that is expected to produce a net cash inflow of...
You are operating an old machine that is expected to produce a net cash inflow of $4,000 in the coming year and $4,000 next year. After that, it will die. You can replace it now with a new machine, which costs $15,000 but is much more efficient and will provide a cash inflow of $8,000 per year for 3 years (After this new machine dies, you can replace it with an identical one indefinitely). You want to know whether you...
a company is evaluating a machine. the machine cost $240,000, has a 3 year life, and...
a company is evaluating a machine. the machine cost $240,000, has a 3 year life, and has pretax operating cost of $70,000 per year. the cost of the machine will be depreciated to zero over the projects life. the machine will be sold for $50,000 at the end of the projects life. if the tax rate is 22% and the discount rate is 12%, what is the equivalent annual cost for this machine?
a company is evaluating a machine. the machine cost $240,000, has a 3 year life, and...
a company is evaluating a machine. the machine cost $240,000, has a 3 year life, and has pretax operating cost of $70,000 per year. the cost of the machine will be depreciated to zero over the projects life. the machine will be sold for $50,000 at the end of the projects life. if the tax rate is 22% and the discount rate is 12%, what is the equivalent annual cost for this machine?
A project has an initial cost of $95,500, a life of 6 years, and equal annual...
A project has an initial cost of $95,500, a life of 6 years, and equal annual cash inflows. The required return is 8.6 percent. According to the profitability index decision rule, what is the minimum annual cash flow necessary to accept the project?
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?
Shao Airlines is considering the purchase of two alternative planes. Plane A has an expected life...
Shao Airlines is considering the purchase of two alternative planes. Plane A has an expected life of 5 years, will cost $100 million, and will produce net cash flows of $30 million per year. Plane B has a life of 10 years, will cost $132 million, and will produce net cash flows of $25 million per year. Shao plans to serve the route for only 10 years. Inflation in operating costs, airplane costs, and fares are expected to be zero,...
Krauth Company purchased a machine for $162,600. The machine has a life of twelve years with...
Krauth Company purchased a machine for $162,600. The machine has a life of twelve years with no salvage value. It is expected that the machine will generate annual net cash inflows of $30,000 per year over its useful life. Assume Krauth Company employs a cost of capital of 10% on all capital investment projects. The internal rate of return (IRR) on the machine is closest to: Group of answer choices 9% 10% 12% 14% 15% 16%
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT