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Precision Tool requires a 12 percent rate of return and uses straight-line depreciation to a zero book value over the life of its equipment. A Machine it is using has an initial cost of $892,000, annual
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Precision Tool requires a 12 percent rate of return and uses straight-line depreciation to a zero book value over the life of its equipment. A Machine it is using has an initial cost of $892,000, annual operating cash flow (OCF) of -$26,300, and a 5-year life. The machine will be replaced at the end of its useful life. What is the EAC of the machine

User Jorge Silva
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Answer: -$273,747.85

Step-by-step explanation:

EAC of machine = Net Present Value / Present value interest factor of Annuity(PVIFA)

Net Present value = Present value of cashflow - Initial investment

= -26,300 * PVIFA, 12%, 5 years - 892,000

= -26,300 * 3.6048 - 892,000

= -$986,806.24

EAC of machine = -986,806.24/ 3.6048

= -$273,747.85

Precision Tool requires a 12 percent rate of return and uses straight-line depreciation-example-1
User JaAnTr
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