Locus Company has total fixed costs of $118,000. Its product sells for $55 per unit and variable costs amount to $39 per unit. N
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Answer:
M1 EAC = 38,576.91
M2 EAC = 29,784.89
Explanation:
The equivalent annual cost is the PMT of the present worh of the machine/investment.
<em>Machine A</em>
54,000 at year 0 then 54,000 at beginning of year 4th
and 18,000 per year
We need to bering into present the 54,000 of the fourth year
the 18,000 are already split into each year.
Maturity 54,000
time 3 (it is done at the beginning of the 4th year not at the end of it)
rate 0.07
PV 44,080.09
54,000 + 44,080.09 = 98,080.09
Then we calculate the PMT
PV $98,080.09
time 6 years
rate 0.07
C $ 20,576.791
Now we add the annual cost of 18,000
getting 38,576.79 as annual equivalent cost ofr machine 1
<u>For machine B</u>
anual cost of 13,000
purchase of 92,000
and 18,000 salvage value at end of year 6:
Maturity 18,000.00
time 6.00
rate 0.07
PV 11,994.16
This is positive as is a cash inflow.
net worth: 92,000 - 11,994.16
net worth: 80.005,84
Now, we solve for PMT:
C $ 16,784.889
add the yearly maintenance cost of 13,000
Equivalent Annual Cost: 29,784.89