In: Finance
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%.
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