3. The analysis period is infinite at the annual interest rate of 5%. Initial ma

Question

3. The analysis period is infinite at the annual interest rate of 5%. Initial machine cost S1M Annual maintenance costs 50,000 Annual benefits 150,000 Life 10 years It is assumed to replace the machine every 10 years at SIM for an infinite period. The annual maintenance costs and benefits will be changed as follows: Annual maintenance costs increase $10,000 every year for the useful life period Annual benefits decrease $15,000 every year for the useful life period o . Calculate the equivalent uniform annual benefit (EUAB) and equivalent uniform annual cost (EUAC). (15 points)

Explanation / Answer

Calcuation of EUAC (equivalent uniform annual cost) = P(A/P, i%, n), where

P = Initial Machinery Cost

i% = Interest rate

n = Life period.

Here P = $1 M + Maintainence Cost = (50000)

i% = 5%

n = 10 years.

So, EUAC= 1050000 (5%, 10).

= $1050000 (0.6139)

= $644595.

Calcuation of EUAB (equivalent uniform annual benefit) = P(A/P, i%, n), where

P = Annual Benefit

i% = Interest rate

n = Life period.

Here P = 150,000

i% = 5%

n = 10 years.

So, EUAC= 150000 (5%, 10).

= $150000 (0.6139)

= $92085.

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