Question

A polisher costs $10,000 and will cost $20,000 a year to operate and maintain. If the discount rate is 10 percent and the polisher will last for 5 years, what is the equivalent annual cost of the tool?

Answer 1

EAC $22,638

Step-by-step explanation:

0 1 2 3 4 5

Cost (10,000)

Cashflows 20,000 20,000 20,000 20,000 20,000

PV factor 1/1.1 1/1.1^2 1/1.1^3 1/1.1^4 1/1.1^5

NPV=Cashflow*PV Factor 18,182 16,529 15,026 13,660 12,418

NPV=10,000+18,182+16529+15,026+13,660+12,418)=85,815

EAC=NPV*r/1-(1+r)^-n=85,815*.1/(1-(1+.1)^-5=$22,638