What is the equivalent annual cost for a project that requires a $40,000 investment at time-period zero,and a $10,000 annual expense during each of the next 4 years,if the opportunity cost of capital is 10%?
A) $20,000.00
B) $21,356.95
C) $22,618.83
D)$25,237.66

Question

Quizplus · Accepted Answer

The equivalent annual cost (EAC) is calculated by finding the present value of all costs and then converting it into an annuity over the project's life. The present value of costs is $40,000 + $10,000(PVIFA, 10%, 4). The EAC is then calculated using the annuity formula.

What Is the Equivalent Annual Cost for a Project That