A company is planning on buying a new machine costing $118,000 and belonging in a 30%...

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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Expert Solution

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

jeff jeffy answered 2 years ago

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