Question

Problem 1 (covering chapter 6): Air conditioning for a college dormitory will cost $1.8 million to install and $200,000 per year to operate. The system should last 20 years. The real cost of capital is 5%, and the college pays no taxes. What is the equivalent annual cost?

Answer 1

D255 >< 在1 -C255 B255 253. Year! Cash flows | pVI F@5% 254 1,800,000 2551$ 200,000 256 2$ 200,000 257 3 200,000 258 4 200,000 259 5$200,000 260 6 200,000 261 7$ 200,000 262 8$200,000 263 9$200,000 264 10 200,000 265 11 200,000 266 12 200,000 Present value 1.000 $ 0.952 $ 0.907 $ 0.864 $ 0.823 $ 0.784 $ 0.746 $ 1,800,000 190,476 181,406 172,768 164,540 156, 0 267 13 $ 200,000 268 14$ 200,000 269 15$200,000 270 16 200,000 271 17 $ 200,000 272 18$ 200,000 273 19 200,000 27420 $ 200,000 275 276 Present value of costs 277-PVIFA(5%,201 0.677 $ 0.645 $ 0.614 $ 0.585 $ 0.557 $ 0.530 $ 0.505 $ 0.481 $ 0.458 $ 0.436 $ 0.416 $ 0.396 $ 0.377 $ 149,243 142,136 135,368 128,922 122,783 116,936 111,367 106,064 101,014 96,203 91,622 87,259 83,104 79,147 75,378 4,292,442 12.462 279 Equivalent annual cost (EAC) $ 344,436.66

Answer 2

Air conditioning for a college dormitory will cost $3 million to install and $125,000 per year to operate at current prices. The system should last 14 years. The real cost of capital is 10%, and the college pays no taxes. What is the equivalent annual cost?