Two costs of construction of a small, remote mine are for labor and transportati

ID: 2751655 • Letter: T

Question

Two costs of construction of a small, remote mine are for labor and transportation. Labor costs are expected to be $120,000 the first year, with inflation of 6% annually for 4 years. Unit transportation costs are expected to inflate at 5% annually, but the volume of material of material being moved changes each year. In today’s dollars, the transportation costs are estimated to be $40,000, $60,000, $50,000, and $30,000 in years 1 through 4. The inflation rate for the value of the dollar is 3%. If the firm uses an inflation free MARR of 7%, calculate the equivalent annual cost for this 4-year project.

Note: Can you please show me the step by step solution and if used an excel sheet, please provide it or email it to malzubi93@gmail.com

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Explanation / Answer

Solution :

Year

Labor (after adding 6% inflation)

Transaport (after adding 3% inflation)

Discount factor@7%

120000

41200

0.934579439

127200

61800

0.873438728

134832

51500

0.816297877

142921.92

30900

0.762895212

524953.92

185400

3.387211256

Total cost (524953.92+185400)

710353.92

equivalent annual cost (710354/3.38721)

209716.45