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Bridgton Golf Academy is evaluating new golf practice equipment. The "Dimple-Max" equipment costs $128,000, has a...

Bridgton Golf Academy is evaluating new golf practice equipment. The "Dimple-Max" equipment costs $128,000, has a 4-year life, and costs $11,600 per year to operate. The relevant discount rate is 10 percent. Assume that the straight-line depreciation method is used and that the equipment is fully depreciated to zero. Furthermore, assume the equipment has a salvage value of $9,500 at the end of the project’s life. The relevant tax rate is 25 percent. All cash flows occur at the end of the year. What is the equivalent annual cost (EAC) of this equipment? (A negative amount should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

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Answer #1

Please refer to below spreadsheet for calculation and answer. Cell reference also provided.

в с о Tax rate Discount rate 25% 10% Year-1 Year-2 Year-3 Year-4 Year 0 -$128,000.00 Equipment Cost Pre-tax Operating Cost De

Cell reference -

C B C D E F G Tax rate Discount rate 0.25 0.1 Year o Year-1 Year-2 Year-3 Year-4 Equipment Cost -128000 11 Pre-tax Operating

Hope this will help, please do comment if you need any further explanation. Your feedback would be highly appreciated.

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