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SGS Golf Academy is evaluating different golf practice equipment. The "Dimple-Max" equipment costs $105,000, has a...

SGS Golf Academy is evaluating different golf practice equipment. The "Dimple-Max" equipment costs $105,000, has a 5-year life, and costs $9,700 per year to operate. The relevant discount rate is 11 percent. Assume that the straight-line depreciation method is used and that the equipment is fully depreciated to zero. Furthermore, assume the equipment has a salvage value of $23,500 at the end of the project’s life. The relevant tax rate is 35 percent. All cash flows occur at the end of the year. What is the EAC of this equipment?

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Expert Solution

EAC $24,912.17

Workings

Year Initial cost Operating cost after tax Tax shield Salvage after tax Net Cash flow
0 -105000 -105000
1 -6305 7350 1045
2 -6305 7350 1045
3 -6305 7350 1045
4 -6305 7350 1045
5 -6305 7350 15275 16320
NPV -92072.82
EAC $24,912.17

jeff jeffy answered 2 days ago
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