Future Semiconductor is considering the purchase of photolithography equipment that will cost $3 million.The equipment requires maintenance of $5,000 at the end of each of the next five years.After five years it will be sold for $500,000.Assume a cost of capital of 15% and no taxes.What is the present value of the cost of the equipment? What is the equivalent annual cost of the equipment?

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Present value of the equipment = 3,000,000 + 5,000/1.15 + 5,000/1.15² + 5,000/1.15³+ 5,000/1.15⁴ + 5,000/1.15⁵- 500,000/1.15⁵ = 2,768,172 Suppose the EAC is x.Then x/1.15 + x/1.15² + x/1.15³+ x/1.15⁴ + x/1.15⁵= 2,768,172 x = 825,789

Future Semiconductor Is Considering the Purchase of Photolithography Equipment That