Q11.2 A construction firm is considering establishing an engineering computing c

Question

Q11.2

A construction firm is considering establishing an engineering computing center. The center will be equipped with three engineering workstations at a cost of $35,000 each, and each has a service life of 5 years. The operating and maintenance cost is $15,000 per machine. The expected salvage value of each workstation is $2,000. AT MARR = 15%, determine the equavlaent annual cost (EAC) for operating the engineering center (Please show work) ( Please use excel if possible)

$76,323

$75,433

.

$72,873

.

$67,098

a.

$76,323

b.

$75,433

c.

.

$72,873

d.

.

$67,098

Explanation / Answer

Option (b).

First, we compute the Present Value (PV) of the costs.

Cost per machine will fall by $2,000 (salvage value) to $13,000 in year 5.

Next, we find EAC as:

2,52,864 = EAC x P/A(15%, 5)

2,52,864 = EAC x 3.35

EAC = 75,482**

**The slight difference is due to rounding off

Year Cost per Machine Cost for 3 Machines PVIF @15% Discounted Cost ($) ($) ($) (A) (B) = (A) x 3 (C) (B) x (C) 0 35,000 1,05,000 1.0000 1,05,000 1 15,000 45,000 0.8696 39,130 2 15,000 45,000 0.7561 34,026 3 15,000 45,000 0.6575 29,588 4 15,000 45,000 0.5718 25,729 5 13,000 39,000 0.4972 19,390 PV ($) = 2,52,864

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