Question

Machine X has an initial cost of $10,000. It is expected to last 12 years, to cost $200 per year to maintain and to have a salvage value of $1,000 at the end of its useful life. The equivalent uniform annual cost of the machine at 8% interest is most nearly ___________.A. 51,547.B. $1,000.C. 51.475.D. 51,160.E. $1,750.

Answer 1

Answer:

C. $1.475

Explanation:

Initial cost of Machine X = $10,000

Annual maintenance cost = $200

Salvage value = $1,000

Interest rate = 8%

Useful life = 12 years

Calculation of the equivalent uniform annual cost

EUAC = Initial cost of the machine X (A/P, i, n) + Annual maintenance cost - salvage value(A/F, i, n)

EUAC = 10,000(A/P, 8%, 12) + 200 - 1,000(A/F, 8%, 12)

EUAC = [10,000 * 0.1327] + 200 - [1,000 * 0.0527]

EUAC = 1,327 + 200 - 52.7

EUAC = 1,474.30