the initial cost of a pickup truck is $11,582 and will have a salvage value of $4,190 after five years. maintenance is estimated to be a uniform gradient amount of $165 per year, with zero dollar for first year maintenance. the operation cost is estimated to be $0.21 per mile for 415 miles per month. if the interest rate is 12%, what is the annual equivalent cost (aec) for the truck?

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27-10-2022
Business

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the initial cost of a pickup truck is $11,582 and will have a salvage value of $4,190 after five years. maintenance is estimated to be a uniform gradient amount of $165 per year, with zero dollar for first year maintenance. the operation cost is estimated to be $0.21 per mile for 415 miles per month. if the interest rate is 12%, what is the annual equivalent cost (aec) for the truck?

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tutorconsortium112 tutorconsortium112 · Answer 1 · 2022-11-04T00:36:22-04:00

If you obtained a $10,000 loan from a bank charging 8% annually compounded monthly. The annual cost of owning, running, and maintaining an asset over the course of its life is known as the equivalent annual cost, or EAC. For capital budgeting, businesses frequently employ EAC.

How are annual equivalent costs determined?

To put it simply, you must divide the asset's net present value (NPV) by the present value of an annuity factor:
NPV / A(t,r) = Equivalent Annual Cost
Equivalent Annual Cost = (Asset Price x Discount Rate) / (1 - (1 + Discount Rate)-n. A(t,r) = (1 - (1/(1+r)t) / r.

When the project is proceeding without interruption, the calculation EAC = BAC / CPI is the one that is most frequently advised. Divide the BAC by the Cost Performance Index to determine the EAC (CPI). EAC = AC When schedule delays and costs rise, the formula is + BAC - EV / CPI x SPI.

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