Equivalent Annual Cost (EAC) for Pillsbury 707
Year |
Annual cash flows ($ in million) |
Present Value Factor (PVF) at 12.00% |
Present Value of annual cash flows ($ in million) [Annual cash flow x PVF] |
1 |
-11,200 |
0.892857 |
-10,000.00 |
2 |
-11,200 |
0.797194 |
-8,928.57 |
3 |
-11,200 |
0.711780 |
-7,971.94 |
4 |
-11,200 |
0.635518 |
-7,117.80 |
5 |
-11,200 |
0.567427 |
-6,355.18 |
TOTAL |
3.604776 |
-40,373.49 |
|
Net Present Value (NPV) = Present Value of annual cash inflows – Initial Investment
= -$40,373.49 - $69,500
= -$109,873.49 (Negative)
Equivalent Annual Cost (EAC) for Pillsbury 707
Equivalent Annual Cost (EAC) = Net Present Value / [PVIFA 12.00%, 5 Years]
= -$109,873.49 / 3.604776
= -$30,479.98 (Negative)
Equivalent Annual Cost (EAC) for Keebler CookieMunster
Year |
Annual cash flows ($ in million) |
Present Value Factor (PVF) at 12.00% |
Present Value of annual cash flows ($ in million) [Annual cash flow x PVF] |
1 |
-9,200 |
0.892857 |
-8,214.29 |
2 |
-9,200 |
0.797194 |
-7,334.18 |
3 |
-9,200 |
0.711780 |
-6,548.38 |
4 |
-9,200 |
0.635518 |
-5,846.77 |
5 |
-9,200 |
0.567427 |
-5,220.33 |
6 |
-9,200 |
0.506631 |
-4,661.01 |
7 |
-9,200 |
0.452349 |
-4,161.61 |
TOTAL |
4.563757 |
-41,986.56 |
|
Net Present Value (NPV) = Present Value of annual cash inflows – Initial Investment
= -$41,986.56 - $96,000
= -$137,986.56 (Negative)
Equivalent Annual Cost (EAC) for Keebler CookieMunster
Equivalent Annual Cost (EAC) = Net Present Value / [PVIFA 12.00%, 7 Years]
= -$137,986.56 / 4.563757
= -$30,235.30 (Negative)
NOTE
The Formula for calculating the Present Value Factor is [1/(1 + r)n], Where “r” is the Discount/Interest Rate and “n” is the number of years.
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