This answer is correct, but I\'m not sure how to find it. Please show the by han

Question

This answer is correct, but I'm not sure how to find it. Please show the by hand solution (not done in excel). Thanks!

The following table is used to to make a replacement decision regarding a piece of engineering equipment: EAC EAC Salvage Maintenance (Capital (Maintenance Year Value Costs Costs) Costs) ??$28900-$3,000--$33,55? $3,000 tal -,5581 2|22,670| 6,000 21,921| 4,429 26,349 6,716 3 15,300 12,000 4 11,280 24,000 15,48210,440 25,922 5 7,800 48,000 13,701 16.592 30,293 What is the EAC(Capital) for the 3rd year at the MARR of 10%? $19.460 e $18,209 $18.181 $17,622 $16.840

Explanation / Answer

First we need to compute the equipment purchase price.

EAC (Capital recovery cost) = Purchase price x (A/P, i, n) – Salvage value x (A/F, i, n)

Putting the values in first year (or in any year) EAC and salvage value, we get initial purchase price.

Let the equipment purchase price be X.

$ 33,558 = X x (A/P, 10%, 1) - $ 28,900 x (A/F, 10%, 1)

X x1.1 - $ 28,900 x 1 = $ 33,558

1.1X = $ 33,558 + $ 28,900 = $ 62,458

X = $ 62,458/1.1 = $ 56,780

Third year EAC:

EAC (Capital recovery cost) = $ 56,780 x (A/P, 10%, 3) – Salvage value x (A/F, 10%, 3)

                                                 = $ 56,780 x 0.4021 – $ 15,300 x 0.3021

                                                 = $ 22,831.24 - $ 4,622.13 = $ 18,209.11 or $ 18,209

Hence option “$ 18,209” is correct answer.

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