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 percent?
A)$20,000.00
B)$21,356.95
C)$22,618.83
D)$25,237.66 NPV = 40,000 + 10,000

Question

Quizplus · Accepted Answer

The equivalent annual cost (EAC) is calculated by finding the present value of the costs and then converting it into an annuity. The present value of the $40,000 investment and the $10,000 annual expenses over 4 years at a 10% discount rate is calculated, and then the EAC is determined using the annuity formula.

What Is the Equivalent Annual Cost for a Project That