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

To calculate the equivalent annual cost, we need to consider both the initial cost and the operating cost. We can use the formula:
EAC = (A/P, i, n) + i x C
where 
A = initial cost = €136,000
i = required rate of return = 12%
n = life of the machine in years = 4
C = annual operating cost = €6,000

Using this formula, we get:
EAC = (136000/3.037) + 0.12 x 6000
EAC = 44731.70 + 720
EAC = €50,776.70

Therefore, the best choice is B.

Jackson & Sons Uses Packing Machines to Prepare Its Products