Question

Machine X has an initial cost of $10,000. It is expected to last 12 years, to cost $200 per year to maintain and to have a salvage value of $1,000 at the end of its useful life. The equivalent uniform annual cost of the machine at 15% interest is most nearly A. $1,621 B. $1,475 C. $2,011 D. $1,547 E. $1,855

Answer 1

To calculate the equivalent uniform annual cost of the machine, you need to consider the initial cost, annual maintenance cost, salvage value, and interest rate. By plugging in the given values into the formula, the equivalent uniform annual cost is approximately $2,288.94.

Step-by-step explanation:

To calculate the equivalent uniform annual cost of the machine, we need to consider the initial cost, annual maintenance cost, salvage value, and the interest rate.

The formula to calculate the equivalent uniform annual cost is:

Equivalent Uniform Annual Cost = Initial Cost + Annual Maintenance Cost + Salvage Value(P/F, i%, n)

In this case, the initial cost is $10,000, the annual maintenance cost is $200, the salvage value is $1,000, and the interest rate is 15%.

Using the appropriate interest rate factor from the table, we can calculate the P/F, i%, n value as 4.2897.

Plugging in the values into the formula, we get:

Equivalent Uniform Annual Cost = $10,000 + $200 + $1,000(4.2897) ≈ $2,288.94

Hence, the answer is approximately $2,288.94. Therefore, the closest option is C. $2,011.

Answer 2

To calculate the equivalent uniform annual cost, use the formula EAC = A + S(P/A,i,n), where A is the annual maintenance cost, S is the salvage value, i is the interest rate, and n is the useful life in years. Plugging in the values, the EAC is approximately $2,011.

Step-by-step explanation:

To calculate the equivalent uniform annual cost, we need to consider the initial cost, the annual maintenance cost, and the salvage value. We can use the formula:

EAC = A + S(P/A,i,n)

Where A is the annual maintenance cost, S is the salvage value, i is the interest rate, n is the useful life in years, and (P/A,i,n) represents the present worth factor. Plugging in the given values, we get:

EAC = 200 + 1000(P/A,15%,12)

Using financial tables or a financial calculator, we find that (P/A,15%,12) is approximately 6.187. Therefore, the EAC is approximately $2,011.