The purchase price of a brand new 3-D printer is $25,000. First year\'s O&M expe
ID: 2740956 • Letter: T
Question
The purchase price of a brand new 3-D printer is $25,000. First year's O&M expenses are expected to be $2,000 and they are expected to increase by $200 per year from the second year onwards. Because of the rapid advances in the 3-D printing technology, the printer is expected to have negligible salvage value at the end of its useful life of 5 years. MARR is 15% per year compounded annually. (DO NOT USE EXCEL)
a) What is the capital recovery cost for the 3-D printer?
b) Determine the EUAC for the 3-D printer.
Explanation / Answer
Part A
Capital recovery cost is the present value of all costs. Present value is calculated by multiplying cash flows by present value factors.
Year
Cash flow
PV Factor 15%
PV
0
-25000
1.0000
-25000
1
-2000
0.8696
-1739.13
2
-2200
0.7561
-1663.52
3
-2400
0.6575
-1578.04
4
-2600
0.5718
-1486.56
5
-2800
0.4972
-1392.09
4.3522
-32859.3
Therefore, capital recovery cost is 32859.3.
Part B
EUAC = capital recovery cost / sum of PV factors
= 32859.30/ 4.3522
= 7550.04
Year
Cash flow
PV Factor 15%
PV
0
-25000
1.0000
-25000
1
-2000
0.8696
-1739.13
2
-2200
0.7561
-1663.52
3
-2400
0.6575
-1578.04
4
-2600
0.5718
-1486.56
5
-2800
0.4972
-1392.09
4.3522
-32859.3
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