A five-year project has an initial fixed asset investment of $295,000, an initia
ID: 2504247 • Letter: A
Question
A five-year project has an initial fixed asset investment of $295,000, an initial NWC investment of $27,000, and an annual OCF of -$26,000 (negative 26K). The fixed asset is fully depreciated over the life of the project and has no salvage value. If the required return is 12 percent, what is this projects equivalent annual cost, or EAC?(Negative amount should be indicated by a minus sign. Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))
A five-year project has an initial fixed asset investment of $295,000, an initial NWC investment of $27,000, and an annual OCF of -$26,000 (negative 26K). The fixed asset is fully depreciated over the life of the project and has no salvage value. If the required return is 12 percent, what is this projects equivalent annual cost, or EAC?(Negative amount should be indicated by a minus sign. Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))
Explanation / Answer
NPV= -(295000+27000)-26000/1.12-26000/1.12^2.....-26000/1.12^5 = -415724.18
EAC= -415724.18/3.604= -115350.77