A five-year project has an initial fixed asset investment of $295,000, an initia
ID: 2763154 • Letter: A
Question
A five-year project has an initial fixed asset investment of $295,000, an initial NWC investment of $27,000, and an annual OCF of $26,000. The fixed asset is fully depreciated over the life of the project and has no salvage value. If the required return is 12 percent, what is this project’s equivalent annual cost, or EAC?(Negative amount should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
A five-year project has an initial fixed asset investment of $295,000, an initial NWC investment of $27,000, and an annual OCF of $26,000. The fixed asset is fully depreciated over the life of the project and has no salvage value. If the required return is 12 percent, what is this project’s equivalent annual cost, or EAC?(Negative amount should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
Explanation / Answer
Statement showing Cash flows Particulars Time PVF Amount PV Cash Outflows (Invt in FA) - 1.00 (295,000.00) (295,000.00) Cash Outflows (Invt in WC) - 1.00 (27,000.00) (27,000.00) Cash Outflows 1.00 0.8929 (26,000.00) (23,214.29) Cash Outflows 2.00 0.7972 (26,000.00) (20,727.04) Cash Outflows 3.00 0.7118 (26,000.00) (18,506.29) Cash Outflows 4.00 0.6355 (26,000.00) (16,523.47) Cash Outflows 5.00 0.5674 (26,000.00) (14,753.10) Cash Inflows (Release of WC) 5.00 0.5674 27,000.00 15,320.53 PV (400,403.66) PVF for 3 Years 3.6048 EAC (111,075.75)
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