Firm A is considering the purchase of copying equipment that will require an initial investment of$15,000...

Firm A is considering the purchase of copying equipment that will require an initial investment of$15,000 and $4,000 per year in annual operating costs over the equipment’s estimated useful life of 5 years. The company will use a discount rate of 8.5%. What is the equivalent annual cost?

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Expert Solution

a	Purchase Cost ($)	15,000.00
b	Life of machines (years)	5.00
c	Running cost per year ($)	4,000.00
d	PVAF (based on life and 8.5% discount factor)	3.941
e	Present Value of Running cost of machine (c*d)	15,762.57
f	Cash outflow of machines (a+e)	30,762.57
g	Equivalent Annual Cost (f/d)	7,806.49

jeff jeffy answered 1 year ago

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