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On a question for equivalent annual cost if the company decides to replace the machine every 2 years, the answer was $44,878 p.a.
Its a question where starts with… A machine cost $72,000 and has a maximum life of 3 years…..
Answer:
The PV at 15% is 72,972
The EAC = 72,972 / 1.626 = 44,878.Why do you divide by 1.626?
It is the 2 year annuity discount factor – we always need to divide by the annuity discount factor to calculate the equivalent annual cost.
You need to watch our free lecture on replacement. Our free lectures are a complete course for Paper F9 and cover everything needed to be able to pass the exam well.
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