Which of the below equations will correctly represent the Annual Costs (EUAC) fo

Question

Which of the below equations will correctly represent the Annual Costs (EUAC) for the analysis of a piece of equipment? Tip: be sure to account for the salvage value correctly!

Initial Cost $250

EUAC = 250*(A/P,i,n) - 120*(A/F, i,n) + 85

EUAC = (250-120)*(A/P,i,n)

EUAC = 250*(A/P,i,n) - 120*(A/F, i,n)

EUAC = 250*(A/P,i,n) + 120*(A/F, i,n)

Which of the below equations will correctly represent the Annual Costs (EUAC) for the analysis of a piece of equipment? Tip: be sure to account for the salvage value correctly!

Initial Cost $250

Explanation / Answer

option C) will correctly represent the  Annual Costs (EUAC) for the analysis of a piece of equipment.

If initial cost is $250 and let interest is " i " and and year is " n " then

EUAC will be P*(A/P,i,n)

Now if there is salvage value then the equation is

EUAC = P*(A/P,i,n) - S*(A/F,i,n)............(1)

or, EUAC = 250*(A/P,i,n) - 120*(A/F, i,n)

option D) is not correct because salvage value means we get something from reselling like furnitures etc.So this a benefit. WE have to deduct it from cost.

Now we know (A/P,i,n) = (A/F,i,n) + i

putting this value in equation (1), we get

EUAC = (P-S)*(A/F,i,n) + Pi

so option b) is also incorrect.

And in case of option A) annual savings should be deducted from the cost.so this option also incorrect.

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