1.9. Conversion to Present Worth Factor for Resale Value

Try these first

1. 1.

   What does EAC stand for?

   Hint

   Think about what each letter represents.

2. 2.

   What is the purpose of calculating a present worth factor?

   Hint

   Consider why present value is critical in financial decision-making.

3. 3.

   What does EAC stand for?

   • Equivalent Asset Cost
   • Equivalent Annual Cost
   • Effective Annual Cost

   Hint

   Consider the yearly nature of costs.

4. 4.

   True or False: The present worth factor only applies to costs encountered in the present.

   • True
   • False

   Hint

   Think about the purpose of present worth factors.

5. 5.

   A new machine costs 5,000,000 rupees, and it has an expected life of 8 years with a salvage value of 1,000,000. What is the EAC at an interest rate of 10%?

   Hint

   Consider both purchase cost and disposal value during the calculation.

6. 6.

   Calculate the total EAC for two machines: Machine A costs 3,000,000 rupees with no salvage value, while Machine B costs 3,500,000 rupees with a salvage value of 500,000, both with a lifespan of 5 years and an interest rate of 12%. Which is better?

   Hint

   Account for both purchase price and estimated salvage values.