Jackson & Sons uses packing machines to prepare its products for shipping.One machine costs €136,000 and lasts about 4 years before it needs replaced.The operating cost per machine is
€6,000 a year.What is the equivalent annual cost of one packing machine if the required rate of
Return is 12%? (Round your answer to whole euros.)

Question

Quizplus · Accepted Answer

The equivalent annual cost (EAC) of an asset can be calculated using the formula: EAC = (Initial Cost + (Operating Cost * Number of Years)) / Present Value Annuity Factor for the given period at the given rate. The Present Value Annuity Factor (PVAF) for 4 years at 12% is approximately 3.037. Thus, EAC = (€136,000 + (€6,000 * 4)) / 3.037 = €50,776 (rounded to whole euros).

Jackson & Sons Uses Packing Machines to Prepare Its Products