Question

A printing press was purchased 4 years ago for $100,000. The current market value is

$45,000, which will decline as follows over the next 5 years: $40,000, $33,500, $28,000,
$24,000, and $17,000. The O & M costs are estimated to be $16,000 this year. These costs
are expected to increase by $5,000 per year starting year 2. MARR = 10%.

The EUAC for defender in year 2 is
A. $31,600
B. $28,357
C. $34,100
D. $25,400

Answer 1

To calculate the EUAC (Equivalent Uniform Annual Cost) for defender in year 2, we need to calculate the present worth of all costs associated with the defender printing press and then convert it to an equivalent annual cost.

First, let's calculate the present worth of the costs associated with the defender printing press:

PW = -P - A(P/A, i, n) - G(P/G, i, n)

where:

P = initial cost = $100,000

A = annual O&M cost = $16,000

G = salvage value = $40,000 (since the market value at the end of year 2 is $40,000)

i = MARR = 10%

n = number of years = 2

PW = -$100,000 - $16,000(P/A, 10%, 2) - $40,000(P/G, 10%, 2)

PW = -$100,000 - $16,000(1.7355) - $40,000(0.8264)

PW = -$100,000 - $27,848 - $33,056

PW = -$160,904

Next, we need to convert the present worth to an equivalent annual cost:

EUAC = PW(A/P, i, n)

EUAC = -$160,904(A/P, 10%, 2)

EUAC = -$160,904(0.1627)

EUAC = -$26,181

However, we need to add the annual increase in O&M costs of $5,000 starting in year 3 to this EUAC. So, the EUAC for defender in year 2 is:

EUAC = -$26,181 + $5,000

EUAC = -$21,181

Therefore, the answer is not one of the options provided.