1.1. Calculating the Equivalent Annual Cost for Year 3

Try these first

1. 1.

   What is the purchase price used for calculating EAC?

   Hint

   Look for the initial cost in the problem statement.

2. 2.

   What is the USCRF for year 3 at an interest of 15%?

   Hint

   Check how USCRF is calculated or given in the lesson.

3. 3.

   What does EAC represent in financial analysis?

   • Annual cost of an asset
   • Total purchase price
   • Total maintenance cost

   Hint

   Think about what expenses are included in EAC.

4. 4.

   Is the USCRF constant for all years?

   • True
   • False

   Hint

   Recall how we determine USCRF for different years.

5. 5.

   A corporation is evaluating an asset purchased for 10,000,000 rupees with an expected life of 5 years and a salvage value of 2,000,000 rupees. If the operating and maintenance costs are 1,000,000 per year, find the EAC.

   Hint

   Find separate EAC for purchase and O&M, then combine.

6. 6.

   Consider a project with revenue inflow of 500,000 rupees, a purchase cost of 3,000,000 rupees, yearly operating costs of 150,000 with no salvage value. Calculate EAC.

   Hint

   Relevance of salvage value needs careful handling in EAC context.