A 6-year project has an initial fixed asset investment of $31,920, an initial NW

Question

A 6-year project has an initial fixed asset investment of $31,920, an initial NWC investment of $3,040, and an annual OCF of -$48,640. The fixed asset is fully depreciated over the life of the project and has no salvage value.

Required: If the required return is 10 percent, what is the project's equivalent annual cost, or EAC? (Do not round your intermediate calculations.)

A 6-year project has an initial fixed asset investment of $31,920, an initial NWC investment of $3,040, and an annual OCF of -$48,640. The fixed asset is fully depreciated over the life of the project and has no salvage value.

Required: If the required return is 10 percent, what is the project's equivalent annual cost, or EAC? (Do not round your intermediate calculations.)

Explanation / Answer

we have initial investment of 31920+3040 = 34960

making it in annuity over 6 year = 34960*(0.1*1.1^6 )/(1.1^6 -1) = 8027 (approx.)

adding it to operating cost = 8027+48640 = 56667

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