2.2. Understanding Total Equivalent Cost

Try these first

1. 1.

   What is the formula for calculating EAC?

   Hint

   Remember, USCRF is used to spread the cost over the years.

2. 2.

   How do you calculate Present Worth?

   Hint

   Focus on the future cash flow and the relevant factor.

3. 3.

   What does EAC stand for?

   • Equivalent Active Cost
   • Equivalent Annual Cost
   • Equally Allocated Cost

   Hint

   Think about the purpose of annual cost in financial assessments.

4. 4.

   True or False: The present worth factor is used to convert future cash flows to their present value.

   • True
   • False

   Hint

   Consider how future value relates to current value.

5. 5.

   A company invests 8,000,000 for 4 years with a 12% interest rate. What is the annual cost?

   Hint

   Make sure to get the correct USCRF value from financial tables.

6. 6.

   If your machine has an O&M cost of 150,000 annually and a salvage value of 1,500,000 after 5 years, what is the total cost adjusted to present worth?

   Hint

   Think through each cash flow step by step.