Question

A company currently spends $4,295 on operating and maintenance costs per year. They expect these cost to increase by $1,111 for the next 5 years. What is the equivalent annual cost of these O & M costs if the MARR is 8.1%?

Answer 1

equivalent annual cost = $7,455.39

Step-by-step explanation:

current costs $4,295

costs in 1 year = $5,406

costs in 2 years = $6,517

costs in 3 years = $7,628

costs in 4 years = $8,739

costs in 5 years = $9,850

first we must calculate the PV of operating and maintenance costs for years 1 through 5 = $29,688.92

equivalent annual cost = PV / PV annuity factor

PV annuity factor, 8.1%, 5 periods = 3.98221

equivalent annual cost = $29,688.92 / 3.98221 = $7,455.39