teth Stud The Perc x https//newconnect.mheducation.com/flow/co 5,67 Help Save Wh
ID: 2541835 • Letter: T
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teth Stud The Perc x https//newconnect.mheducation.com/flow/co 5,67 Help Save White Oaks Properties builds strip shopping centers and small malls. The company plans to replace its refrigeration, cooking, and HVAC equipment with newer models in one entire center built 10 years ago. 10 years ago, the original purchase price of the equipment was $800,000 and the operating cost has averaged $215,000 per year. Determine the equivalent annual cost of the equipment if the company can now sell it for $244,000. The company's MARR is 19% per year as) The equivalent annual cost of the equipment is determined to be $Explanation / Answer
Solution: The equivalent annual cost of the equipment is determined to be $ -389,502.05 Working Notes: The equivalent annual cost of the equipment is determined by dividing NPV of equipment by Cumulative PVF @ MARR for 1 to 10 years NPV= Initial cost (operating cost x Cumulative PVF @ 19% 1 to 10 years) + (salvage value(1/(1.19)^10)) NPV = $800,000 ($215,000 x Cumulative PVF @ 19% 1 to 10 years) + ($244,000 x (1/(1.19)^10)) = -$800,000 - ($215,000 X 4.338934867 ) + ($244,000 x 0.175602375) =-$800,000 -$932,870.996405 +42,846.9795 =-1,690,024.01691 The equivalent annual cost of the equipment is determined = NPV/Cumulative pvf @ MARR for project life EAC=NPV/Cumulative PVF @ 19% 1 to 10years EAC = -1,690,024.01691 /4.338934867 EAC= -389,502.05 Cumulative PVF @ 19% for 1 to 10th is calculated = (1 - (1/(1 + 0.19)^10) ) /0.19 =4.338934867 PVF @ 19% for 10th period is calculated by = 1/(1+i)^n = 1/(1.19)^10= 0.175602375 Please feel free to ask if anything about above solution in comment section of the question.
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