Question

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
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Answer #1

Equivalent Annual Cost is calculated in excel and screen shot provided below:

Equivalent Annual Cost is $382,188.48.

Option (A) is correct answer.

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