Question

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ABC company has decided to purchase a new printing machine. This Machine has a 9-yer life...

ABC company has decided to purchase a new printing machine. This Machine has a 9-yer life and will cost 750,000 to install the new machine. Total operation costs of the machine per year is 10,000. Calculate the EAC, if the discount rate is 11.25%.

Expert Solution

Step 1 is to find the PV of the annual operations cost:

We are given the following information:

PMT	$ 10,000.00
r	11.25%
n	9
frequency	1

We need to solve the following equation to arrive at the required PV

So the PV of the annual costs is $54836.52

Step 2: We add the same to the initial cost of 750000 to get a total cost of 750000+54836.52 = $804,836.52

Step 3: We find the annual PMT that discounts to this PV:

We are given the following information:

r	11.25%
n	9
frequency	1
PV	$ 8,04,836.52

We need to solve the following equation to arrive at the required PMT:

So the EAC or the equated annual cost is 146770.16

jeff jeffy answered 1 year ago

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