In: Finance
A company is planning on buying a new machine costing $118,000
and belonging in a 30% CCA class. The machine has projected
maintenance costs of $16,000 annually over its three-year life. At
the end of the three years, the machine will be worthless and will
be scrapped. The company has a 34% tax rate and a 16% discount
rate. What is the equivalent annual cost of the machine?
options: $68,540
$47,892
$52,254
$36,520
$55,333
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Answer $ 68540
Cost of System | 118,000.000 | |
Initial outlay | 118,000.000 | |
Add | PV of annual operating cost(see note) | 35,934.240 |
Less | Present value of salvage value | - |
Total | 153,934.240 | |
PVAF(16%3) = | 2.2459 | |
EAC ( Total/PVAF) | 68,540.42 | |
NOTE: | PV of annual operating cost | 16000*PVAF(16%,3) |
35,934.240 | ||
PVAF(16%,3) = | 1/1.16^1 + 1/1.16^2 + ….1/1.16^3 | |
2.24589 |