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