A furniture manufacturer is planning on buying a new industrial sander costing $118,000 and belonging in a 30% CCA class. The sander has projected maintenance costs of $16,000 annually over the three-year life of the sander. At the end of the three years, the sander will be worthless and will be scrapped. The company has a 34% tax rate, a 16% discount rate. What is the equivalent annual cost?

Question

Quizplus · Accepted Answer

The equivalent annual cost (EAC) is calculated by considering the initial cost, maintenance costs, tax savings from depreciation, and discount rate. The EAC is the annual cost that equates the present value of costs over the asset's life.

A Furniture Manufacturer Is Planning on Buying a New Industrial