Question

if the interest rate is 10%, the depreciation rate of an asset is 10%, its service life is 10 years and its first cost is $10 million then eac(capital) for a ten-year life is:_____

Answer 1

The EAC calculation for an asset with a $10 million initial cost, 10% interest rate, 10% depreciation rate, and a service life of 10 years involves amortizing the cost over the asset's life span.

Step-by-step explanation:

The student is asking about the Equivalent Annual Cost (EAC) for an asset that has an initial cost, a depreciation rate, and an interest rate. To calculate EAC, one typically amortizes the initial cost at the given interest rate, over the service life of the asset. In this scenario, we are considering a 10% interest rate, a 10% depreciation rate, and a service life of 10 years, with an initial cost of $10 million.

To calculate the EAC, one can use the formula EAC = (PV * i) / (1 - (1 + i)^-n), where PV is the present value (initial cost), i is the interest rate per period (10% in this case), and n is the number of periods (10 years).