Homework Answers
Present value of all cash flows =
= [$870,000 / (1.1)0] + [$9,000 / (1.1)1] + [$9,000 / (1.1)2] + [$9,000 / (1.1)3]
= $870,000 + $8,181.82 + $7,438.02 + $6,761.83
= $892,381.70
Equivalent annual cost = Present value of all cash flows / PVAF(10% , 3 years)
Equivalent annual cost = $892,381.70 / 2.486852
Equivalent annual cost = $358,840
So, Equivalent annual cost = - $358,840
Option '4' is correct
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