**Answer:**

Equivalent Annual Cost: ** $ 499,109.977 **

**Explanation:**

**The equivalent annual cost is the PMT of the net present value of a project.**

In this case the company will spend:

year 1: 1,500,000

year 2: 2,000,000

plus 65,000 maintenance cost for during each year.

we calculate the first two using the present value of a lump sum

Nominal: $ 1,500,000.00

time 1 year

rate 0.06

PV 1,415,094.34

Nominal: $ 2,000,000.00

time 2 year

rate 0.06

PV 1,779,992.88

Then the maintenance cost will be an ordinary annuity:

C 65,000

time 10

rate 0.06

PV $478,405.6583

now we add them together:

1,415,094.3 + 1,779,992.88 + 478,405.6583 = $3,673,492.88

and calculate the PMT:

PV $3,673,492.88

time 10

rate 0.06

**C $ 499,109.977 **