Question

A manufacturer purchased $14500 worth of equipment with a useful life of twelve (12) years. Assuming 8% interest, the equivalent uniform annual cost of the equipment is ______________.

Answer 1

Given Information:

P = $14,500

r = 8 %

Period = 12 years

Required Information:

Equivalent annual cost = ?

Answer:

Equivalent annual cost = $1,924

Explanation:

The equivalent annual cost EAC is often used to compare assets which have unequal useful life spans in order to make more cost effective decisions.

The equivalent annual cost can be found by using the following equation:

Equivalent annual cost = Present value*r / 1 - (1 + r)⁻ⁿ

Equivalent annual cost = 14,500*0.08/1 - (1+0.08)⁻¹²

Equivalent annual cost = $1,924