Champion Bakers uses specialized ovens to bake its bread. One oven costs $689,00

Question

Champion Bakers uses specialized ovens to bake its bread. One oven costs $689,000 and lasts about 4 years before it needs to be replaced. The annual operating cost per oven is $41,000. What is the equivalent annual cost of an oven if the required rate of return is 13 percent? A. -$272,638 B. -$248,313 C. -$232,407 D. -$200,561 E. $196,210 Champion Bakers uses specialized ovens to bake its bread. One oven costs $689,000 and lasts about 4 years before it needs to be replaced. The annual operating cost per oven is $41,000. What is the equivalent annual cost of an oven if the required rate of return is 13 percent? A. -$272,638 B. -$248,313 C. -$232,407 D. -$200,561 E. $196,210 Champion Bakers uses specialized ovens to bake its bread. One oven costs $689,000 and lasts about 4 years before it needs to be replaced. The annual operating cost per oven is $41,000. What is the equivalent annual cost of an oven if the required rate of return is 13 percent? A. -$272,638 B. -$248,313 C. -$232,407 D. -$200,561 E. $196,210

Explanation / Answer

Equivalent annual cost = Annual cost + Capital cost / (PVIFA)

= 41000 + ( 689000 / 2.97447133 )

= 41000 + 231637.80

= - 272638 ............... is the final answer .... Option - A

Note the sign of ............. negative is due to cost ....... i.e cash outflow

Kindly rate my answer ......... wishing you all the best.

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