Question

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 it's useful life of 10 years. It is determined by the plant engineering department of the company that the operation and maintenance cost will be $500 every year (from year 1 to year 10). Determine the capital cost of the equipment if the interest rate is 10% annual

Answer 1

Answer:

$1952.945

Explanation:

To solve this we will First find the NPV of the Net cash flows, please kindly go through the table in the attachment for this.

Now find the Annuity of that NPV.

PV = A [ (1+r)^n - 1] / [r*(1+r)^n]

15831.31 = A [ (1+0.10)^10 - 1] / [0.10*(1+0.10)^10]

A = 2576.47

EUAC = (asset price*discount rate)/(1-(1+discount rate)^-no of periods))

= $1952.945