Final answer:
The project's equivalent annual cost (EAC) is approximately $10,058.47
Step-by-step explanation:
To calculate the project's equivalent annual cost (EAC), we need to find the annual cash flow for each year of the project's life. In this case, the project has a life of 8 years and an initial fixed asset investment of $39,480. The fixed asset is fully depreciated over the life of the project and has no salvage value. Therefore, the annual depreciation expense is $39,480 / 8 = $4,935.
The annual net working capital (NWC) investment is given as $3,760. We also have the annual operating cash flow (OCF) of -$60,160. The OCF includes the depreciation expense, so we need to add the depreciation back to calculate the cash flow before depreciation (CFBD). CFBD = OCF + Depreciation = -$60,160 + $4,935 = -$55,225.
To find the EAC, we use the formula:
EAC = initial fixed asset investment + initial NWC investment + Sum of CFBDs / (1 + required return)^(year)
Plugging in the values:
EAC = $39,480 + $3,760 + (-$55,225) / (1 + 0.13)^1 + (-$55,225) / (1 + 0.13)^2 + ... + (-$55,225) / (1 + 0.13)^8
EAC ≈ $10,058.47