2.3. Calculating EAC for Purchase Price

Try these first

1. 1.

   What does EAC stand for?

   Hint

   Think about the annual cost of owning equipment.

2. 2.

   Why is salvage value important in EAC calculations?

   Hint

   Consider how end-of-life sells impact overall ownership costs.

3. 3.

   What does the acronym EAC represent?

   • Expected Annual Cost
   • Equivalent Annual Cost
   • Estimated Average Cost

   Hint

   Reflect on annual costs related to equipment management.

4. 4.

   Is salvage value considered when calculating total costs for EAC?

   • True
   • False

   Hint

   Think about the future resale and its financial retrieval.

5. 5.

   A company purchases a machine for $45,000, expects a salvage value of$8,000, and projects annual operating costs to rise from $1,500 to$3,000 over 6 years. Calculate the economic life of the machine using EAC.

   Hint

   Take multiple years of operation into account along with the salvage value.

6. 6.

   If a construction firm has two machines with different purchase prices of $50,000 and$40,000, both with similar operating costs but differing salvage values, explain which machine they should choose based on EAC principles.

   Hint

   Focus on the whole lifecycle, including sale prices, while weighing initial costs against efficiencies.