What is the equivalent annual cost for a project that requires a $40,000 investment at time 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

NPV = −$40,000 − $10,000[(1 / 0.1) − 1 / 0.1(1.1)⁴] = −$71,698.65The EAC is the payment that has the same NPV given 4 years and a 10% discount rate.So, using a financial calculator:n = 4; i = 10%; PV = −$71,698.65; FV = 0; CPT PMT = $22,618.83

What Is the Equivalent Annual Cost for a Project That