Rolled ball screws are suitable for high-precision applications such as water je

Question

Rolled ball screws are suitable for high-precision applications such as water jet cutting. Their total manufacturing cost is expected to decrease because of increased productivity, as shown in the table. Determine the equivalent annual cost at an interest rate of 8% per year.

Year

1

2

3

4

5

6

7

8

Cost, $1000

200

195

190

185

180

175

170

165

  

Year

     

1

     

2

     

3

     

4

     

5

     

6

     

7

     

8

     

Cost, $1000

     

200

     

195

     

190

     

185

     

180

     

175

     

170

     

165

  

Explanation / Answer

NPV = (200/1.08)+(195/1.08^2)+(190/1.08^3)+(185/1.08^4)+(180/1.08^5)+(175/1.08^6)+(170/1.08^7)+(165/1.08^8) = 1060.3

A = (1-(1.08)^-8)/.08 = 5.746

EAC = 1060.3/5.746 = $184.52

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