A project with a life of 12 has an initial fixed asset investment of $21,420, an...

A project with a life of 12 has an initial fixed asset investment of $21,420, an initial NWC investment of $2,040, and an annual OCF of –$32,640. The fixed asset is fully depreciated over the life of the project and has no salvage value.

If the required return is 13 percent, what is the project's equivalent annual cost, or EAC?

Expert Solution

Sol:

Project's equivalent annual cost calculation below:

Year	Cash Flows	PV factor @13%	Discounted cash flows
0	-23460	1	-23460.00
1	-32640	0.8850	-28884.96
2	-32640	0.7831	-25561.91
3	-32640	0.6931	-22621.16
4	-32640	0.6133	-20018.72
5	-32640	0.5428	-17715.68
6	-32640	0.4803	-15677.60
7	-32640	0.4251	-13873.98
8	-32640	0.3762	-12277.86
9	-32640	0.3329	-10865.36
10	-32640	0.2946	-9615.36
11	-32640	0.2607	-8509.17
12	-30600	0.2307	-7059.60

Total discounted cash flows	-216141.36
PVIFA at 13% for 12 years	5.92

Project EAC	-36524.88

Therefore project's equivalent annual cost (EAC) will be -$36524.88

Working

jeff jeffy answered 1 year ago

A project with a life of 11 has an initial fixed asset investment of $44,520, an...

A project with a life of 11 has an initial fixed asset investment of $44,520, an initial NWC investment of $4,240, and an annual OCF of –$67,840. The fixed asset is fully depreciated over the life of the project and has no salvage value. If the required return is 14 percent, what is the project's equivalent annual cost, or EAC? Multiple Choice $-37,970.01 $-76,598.31 $-80,428.23 $-72,768.40 $-65,108.57

A project with a life of 9 has an initial fixed asset investment of $31,500, an...

A project with a life of 9 has an initial fixed asset investment of $31,500, an initial NWC investment of $3,000, and an annual OCF of –$48,000. The fixed asset is fully depreciated over the life of the project and has no salvage value. If the required return is 9 percent, what is the project's equivalent annual cost, or EAC? a) -56200.37 b)-53524.16 c)-45495.54 d)-50847.95 e)-35654.51

A project with a life of 8 has an initial fixed asset investment of $45,360, an...

A project with a life of 8 has an initial fixed asset investment of $45,360, an initial NWC investment of $4,320, and an annual OCF of –$69,120. The fixed asset is fully depreciated over the life of the project and has no salvage value. If the required return is 16 percent, what is the project's equivalent annual cost, or EAC?

A project with a life of 7 has an initial fixed asset investment of $27,720, an...

A project with a life of 7 has an initial fixed asset investment of $27,720, an initial NWC investment of $2,640, and an annual OCF of –$42,240. The fixed asset is fully depreciated over the life of the project and has no salvage value. If the required return is 16 percent, what is the project's equivalent annual cost, or EAC?

A project with a life of 10 has an initial fixed asset investment of $10,920, an...

A project with a life of 10 has an initial fixed asset investment of $10,920, an initial NWC investment of $1,040, and an annual OCF of –$16,640. The fixed asset is fully depreciated over the life of the project and has no salvage value. If the required return is 9 percent, what is the project's equivalent annual cost, or EAC?

A project with a life of 10 years has an initial fixed asset investment of $50000,...

A project with a life of 10 years has an initial fixed asset investment of $50000, an initial NWC investment of $10000 and an annual OCF of -$705000. the fixed asset is fully depreciated over the life of the project and has no salvage. If the required return is 12% what is the projects EAC?

A five-year project has an initial fixed asset investment of $310,000, an initial NWC investment of...

A five-year project has an initial fixed asset investment of $310,000, an initial NWC investment of $30,000, and an annual OCF of -$29,000. The fixed asset is fully depreciated over the life of the project and has no salvage value. If the required return is 11 percent, what is this project’s equivalent annual cost, or EAC?

A five-year project has an initial fixed asset investment of $275,000, an initial NWC investment of...

A five-year project has an initial fixed asset investment of $275,000, an initial NWC investment of $23,000, and an annual OCF of −$22,000. The fixed asset is fully depreciated over the life of the project and has no salvage value. If the required return is 10 percent, what is this project’s equivalent annual cost, or EAC? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places, e.g.,...

A five-year project has an initial fixed asset investment of $265,000, an initial NWC investment of...

A five-year project has an initial fixed asset investment of $265,000, an initial NWC investment of $21,000, and an annual OCF of −$20,000. The fixed asset is fully depreciated over the life of the project and has no salvage value. If the required return is 12 percent, what is this project’s equivalent annual cost, or EAC? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places, e.g.,...

A five-year project has an initial fixed asset investment of $260,000, an initial NWC investment of...

A five-year project has an initial fixed asset investment of $260,000, an initial NWC investment of $20,000, and an annual OCF of -$19,000. The fixed asset is fully depreciated over the life of the project and has no salvage value. If the required return is 10%, what is this project's equivalent annual cost, or EAC?

Question