Question

If the interest rate is 11%, what is the Equivalent Annual Cost (EAC) of the following machine: Cost: $9,000 Life: 10 years Annual cost to operate: $2,000 Answer to 2 decimal places, for example 970.12

Answer 1

Year	Cash Flow	PV Factor	PV Of Cash Flow
a	b	c=1/1.11^a	d=b*c
0	$       9,000	1	$             9,000.00
1	$       2,000	0.900900901	$             1,801.80
2	$       2,000	0.811622433	$             1,623.24
3	$       2,000	0.731191381	$             1,462.38
4	$       2,000	0.658730974	$             1,317.46
5	$       2,000	0.593451328	$             1,186.90
6	$       2,000	0.534640836	$             1,069.28
7	$       2,000	0.481658411	$                 963.32
8	$       2,000	0.433926496	$                 867.85
9	$       2,000	0.390924771	$                 781.85
10	$       2,000	0.352184479	$                 704.37
Total		6.889232011	$           20,778.46
a	Present value of cost		$           20,778.46
b	PVAIF		6.889232011
c	Equivalent annual cost a/b		$             3,016.08