A new equipment is being considered at a local company at a cost of $200,000. Th

Question

A new equipment is being considered at a local company at a cost of $200,000. The operation and maintenance costs of this equipment are estimated to be about $20,000 per year. Salvage value is expected to be $40,000 at the end of its useful life. The life of this equipment is estimated to vary anywhere from 5 to 9 years with the associated probabilities as shown in the table below. If an interest rate of 10% is used, what is the expected EUAC for this equipment? Life, Years 5 6 7 89 Probability 0.3 0.1 0.150.20 0.25

Explanation / Answer

A B A-B (Cost*R) 10% Cost EUAC Cost Salvage P Salvage EUAC EUAC Year R 300000 79139.24 40000 0.3 2442.04 76697.2 5 1.61051 0.61051 2.637975 0.263797 320000 73474.36 40000 0.1 3086.244 70388.12 6 1.771561 0.771561 2.296074 0.229607 340000 69837.87 40000 0.15 3794.8684 66043 7 1.948717 0.948717 2.054055 0.205405 360000 67479.85 40000 0.2 4574.35524 62905.49 8 2.143589 1.143589 1.87444 0.187444 380000 65983.40 40000 0.25 5431.790764 60551.61 9 2.357948 1.357948 1.736405 0.173641 EV EUAC 67673.43

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