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What is the equivalent annual cost (EAC) of this equipment?

What is the equivalent annual cost (EAC) of this equipment?

Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Bridgton Golf Academy is evaluating different golf practice equipment. The "Dimple-Max* equipment costs $104,000, has a three-year life, and costs $8,600 per year to operate. The relevant discount rate is 10%. Assume that the straight-line depreciation method is used and that the equipment is fully depreciated to $0. Furthermore, assume the equipment has a salvage value of $20,000 at the end of the project's life. The relevant tax rate is 28%. All cash flows occur at the end of the year. What is the equivalent annual cost (EAC) of this equipment?
Transcribed Image Text:Bridgton Golf Academy is evaluating different golf practice equipment. The "Dimple-Max* equipment costs $104,000, has a three-year life, and costs $8,600 per year to operate. The relevant discount rate is 10%. Assume that the straight-line depreciation method is used and that the equipment is fully depreciated to $0. Furthermore, assume the equipment has a salvage value of $20,000 at the end of the project's life. The relevant tax rate is 28%. All cash flows occur at the end of the year. What is the equivalent annual cost (EAC) of this equipment?
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