2.1. Adding Purchase Price and Operating Costs

Try these first

1. 1.

   What does EAC stand for?

   Hint

   Think about cost over time.

2. 2.

   What is the purpose of calculating the present worth?

   Hint

   Consider cash flows happening in different years.

3. 3.

   What does EAC stand for?

   • Annual Cost Equivalent
   • Equivalent Annual Cost
   • Cost of Asset Management

   Hint

   Think about what it means in context of annual expenses.

4. 4.

   True or False: The USCRF can only be applied to operating costs.

   • True
   • False

   Hint

   Consider all the factors we've discussed.

5. 5.

   A machine costs 10,000,000 with a 5% interest rate and a USCRF of 0.1. Calculate the EAC.

   Hint

   Follow the steps we used in class.

6. 6.

   If the operating cost is 300,000 for 3 years, what is the present worth at a 10% interest rate?

   Hint

   Recall how we calculated present worth for operating costs.