Question

Champion Bakers uses specialized ovens to bake its bread One oven costs $860,000 and lasts about 3 years before it needs to be replaced The annual operating cost per oven is $11,000 What is the equivalent annual cost of an oven if the required rate of return is 9 percent? (Round your answer to whole dollars) $-356,474 $-344,484 O $-352,48 O $ 328,388 $350,747 Network 3 items DK

Answer 1

Present value of costs = 860,000 + 11,000*PVAF(9%, 3 years)

= 860,000 + 11,000*2.53129

= $887,844.24

EAC = Present value of costs/PAVF(9%, 3 years)

= 887,844.24/2.53129

= $350,747.73

hence, the answer is $350,747