4. Kal Tech Engineering is investigating the possibility of acquiring new automa

Question

4. Kal Tech Engineering is investigating the possibility of acquiring new automated packaging equipment at a cost of $12,000. It is expected that the equipment will have a salvage value of $1,000 at the end of its useful life of 10 years. It is determined by the plant engineering department at the company that the operation and maintenance cost will be $500 in the first year and will gradually increase every year starting year 2 at the rate of S50 until the equipment is retired. Determine the equivalent uniform annual cost (EUAC) if MARR for the company is 10%. A) $2,150.50 B) $2,176.60 C) $2,184.40 D) $2,575.95

Explanation / Answer

EUAC = Total of the Present values / Total of the Discounting factors

=15831.31 / 6.1446 = 2576.............final answer is thus Option - D

Note that total of present value = 6.1446 is obtained by adding df values from year - 1 to year - 10.

Year       CF DF    PV 0 12000 1 12000 1 500 0.909091 454.5455 2 550 0.826446 454.5455 3 600 0.751315 450.7889 4 650 0.683013 443.9587 5 700 0.620921 434.6449 6 750 0.564474 423.3554 7 800 0.513158 410.5265 8 850 0.466507 396.5313 9 900 0.424098 381.6879 10 950 0.385543 366.2661 10 -1000 0.385543 -385.543 Total 6.144567 15831.31

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