A equipment costing $120,000 has a useful life of six years after which its estimated value will be $25000 .Annual running cost be $4,000 for first two years and $6,000 for each of next four years .All running cost are payable on last day of year to which the relate.
Using discount rate of 15% per annum what is equivalent annual cost of using equipment if it were bought and replaced every six years is perpetuity?
I calculated this as:
Multiplied by AF & DF as needed.
0-Initial-(120,000)*1
1-2, Cost-(4000)*1.626
3-6, Cost- (6000)*3.784-0.870
6, Scrap- 25000*.432
After I calculated PV and then EAC. Is this correct way? My answer is wrong.
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9y ago#1In future, if you want for me to help then you should ask in the Ask the Tutor Forum - this forum is for students to help each other.
The answer as you have typed it is fine, except for the flow of 6,000 from time 3 to time 6.
The discount factor to use is the 6 year annuity (3.784) minus the 2 year annuity factor (1.626).
Thank you so much
9y ago#3You are welcome :-)
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