You are operating an old machine that is expected to produce a cash inflow of $5,000...
You are operating an old machine that is expected to produce a cash inflow of $5,000 in each of the next 3 years before it fails. You can replace it now with a new machine that costs $20,000 but is much more efficient and will provide a cash flow of $10,000 a year for 4 years.
Calculate the equivalent annual cost of the new machine if the discount rate is 15%. (Do not round intermediate calculations. Round your answer to 2 decimal places.)
Homework Answers
EAC of New Machine
EAC = Initial cost*(A/P,15%,4) + 10000
= 20000/( (1-1/(1+rate)^number of terms)/rate) + 10000
= 20000/ ((1-1/1.15^4)/0.15) + 10000
= 17005.31
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