Question

The purchase price of a new printing press is $16,000 with $3,800 in installation cost and would have a salvage value that can be estimated using a declining balance approach with d=21%. Operating and maintenance costs will be $4,220 this year and will increase by $85 per year. If the company's MARR is 10%, what is the EAC if the press is kept for 6 years? Use a positive sign convension for your answer, i.e EAC will be >0 and round your answer to the nearest penny.

Answer 1

Initial Cost=16000+3800=$19800

Salvage value after 6 years=19800*(1-21%)^6=$4813.13

Operating and maintenance cost at the end of year 1=R=4220

Uniform gradient=G=$85

First we estimate the PW of Costs of project.

PWC=19800+4220*(P/A,0.10,6)+85*(P/G,0.10,6)-4813.13*(P/F,0.10,6)

Let us calculate the interest fators

(P/F,0.10,6)=1/(1+0.10)^6=0.564474

(1+i)" (P/A, i,n)=-

1- 1+-0. 10) (Ρ/Α, 0.10, 6) = - 4.355261 0.10

(P/G,i,n) = (1+i)" -1 2(1+i) i(1+i)n

(P/G,0.10,6) = (1 + 0.10)6 - 1 6 0766-01001.40.10)6 = 9.684171 0.102(1 + 0.10)6 0.10(1 + 0.106

PWC=19800+4220*4.355261+85*9.684171-4813.13*0.564474=36285.47

Now let us calculate EAC in this case

EAC=PWC/(P/A,0.10,6)=36285.47/4.355261=$8331.41