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A machine has a first cost of $126,000, an annual operation and maintenance cost of $1850, a life of 8 years, and a salvage value of $27,000. At the end of Years 3 and 6, it requires a major service, which costs $14,000 and $16,500, respectively. What is the equivalent uniform annual cost of owning and operating this particular machine if interest is 6%

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jepessoa

Answer:

$23,178.60

Explanation:

we must determine the cash flows associated with this asset:

cash flow 0 = -$126,000

cash flow 1 = -$1,850

cash flow 2 = -$1,850

cash flow 3 = -$15,850

cash flow 4 = -$1,850

cash flow 5 = -$1,850

cash flow 6 = -$18,350

cash flow 7 = -$1,850

cash flow 8 = $25,150

using a financial calculator, the NPV = -$143,934.50

the PV annuity factor, 6%, 8 periods = 6.2098

equivalent annual cost = -$143,934.50 / 6.2098 = -$23,178.60

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