Question

1. A printing machine costs P400,000 to purchase with a life of 10 years with no salvage value .If the rate of interest is 10% per annum. compounded annually ,compute the equivalent uniform annual cost of the machine if it will cost P100,000 per year to operate ?

2. The first cost of an electric rebar bender is P324,000 and a salvage value of P50,000 at the end of its life for 4 years .Money is worth 6% annually .If there is no salvage value and the annual maintenance costs is P18,000 ,find the capitalized cost of perpetual service .

Answer 1

1]

Equivalent annual cost = (NPV * r) / (1 - (1 + r)^-n),

where NPV = net present value

r = discount rate

n = life of machine.

NPV = present value of cash flows

NPV = -1,014,457.

A 1 Year BECOWN B Present Cash Flow Value 0 (400,000) (400,000) 1 (100,000) (90,909) 2 (100,000) (82,645) 3 (100,000) (75,131) 4 (100,000) (68,301) 5 (100,000) (62,092) 6 (100,000) (56,447) 7 (100,000) (51,316) 8 (100,000) (46,651) 9 (100,000) (42,410) 10 (100,000) (38,554) NPV (1,014,457)

C 1 Year 20 31 Not Cash Flow =-400000 -100000 -100000 -100000 -100000 - 100000 -100000 -100000 -100000 -100000 -100000 NPV Present Value =B2/(1+10%) A2 =B3/(1+10%)^A3 =B4/(1+10%)^A4 =B5/(1+10%)^A5 =B6/(1+10%) A6 =B7/(1+10%)^A7 =B8/(1+10%)^A8 =B9/(1+10%)^A9 =B10/(1+10%)^A10 =B11/(1+10%)^A11 =B12/(1+10%)^A12 1 =SUM(C2:012) 97 10 8 11 9 12 10 13

EAC = (-1,014,457 * 10%) / (1 - (1 + 10%)^-10)

EAC = -165,098.16