A four-year project requires an initial investment of $165,000 in ﬁxed assets plus $25,000 in net working capital. The project has after-tax costs of $14,501. The assets belong in a 20% CCA class
And will have no salvage value. What is the project's equivalent annual cost if the required return is
14% and the ﬁrm's tax rate is 34%?

Question

Quizplus · Accepted Answer

The equivalent annual cost (EAC) is calculated by finding the present value of costs and then converting it into an annuity. The initial investment and net working capital are considered, along with the tax shield from CCA. The EAC is the annual cost that equates to the present value of these costs over the project's life at the given discount rate.

A Four-Year Project Requires an Initial Investment of $165,000 in ﬁXed