1.7. Calculating Equivalent Annual Cost for Year 3 of O&M Cost

Try these first

1. 1.

   What does EAC stand for?

   Hint

   Look for the acronym meaning in basic definitions.

2. 2.

   What is the first step to calculate the EAC from the purchase price?

   Hint

   The acronym helps remember the two components needed for this calculation.

3. 3.

   What does EAC stand for?

   • Earning Annual Cost
   • Equivalent Annual Cost
   • Equalized Annual Cost

   Hint

   Focus on the 'A' in EAC for annual.

4. 4.

   Is the USCRF constant across different years?

   • True
   • False

   Hint

   Remember how interest impacts future value.

5. 5.

   A company has purchased equipment for 5,000,000 with a USCRF of 0.25. If the total O&M costs yearly are 500,000 but increase 5% each year, calculate the EAC after three years.

   Hint

   Factor each year’s increase into the calculations.

6. 6.

   If a piece of machinery is expected to last for 10 years with an initial purchase of 20,000,000 and a salvage value of 2,000,000 after that time, estimate the EAC using a 10% interest rate.

   Hint

   Considering salvage values is crucial for accurate costing.