Question

The city of Oak Ridge is considering the construction of a four kilometer​ (km) greenway walking trail. It will cost ​$1 comma 000 per km to build the trail and ​$340 per km per year to maintain it over its 22​-year life. If the​ city's MARR is 11​% per​ year, what is the equivalent uniform annual cost of this​ project? Assume the trail has no residual value at the end of 22 years.

Answer 1

Answer:

equivalent uniform annual cost = $1,849.25

Explanation:

Initial cost $4,000

then 22 cash outflows of $1,360

discount rate 11%

using a financial calculator, we determine the NPV = -$15,119.01

EAC = (NPV x r) / [1 - (1 + r)⁻ⁿ]

EAC = (-$15,119.01 x 11%) /  [1 - (1 + 11%)⁻²²] = -$1,663.09 / 0.89933 = -$1,849.25