2.1. Equivalent Uniform Annual Cost of Salvage Value

Try these first

1. 1.

   What is Equivalent Annual Cost?

   Hint

   Think about how costs spread over time.

2. 2.

   Define salvage value.

   Hint

   Consider what an asset could be worth eventually.

3. 3.

   What does EAC stand for?

   • Equivalent Annual Cost
   • Estimated Annual Cost
   • Endless Annual Cost

   Hint

   Remember the context of annualizing costs.

4. 4.

   True or False: Salvage value is what an asset is worth at the end of its useful life.

   • True
   • False

   Hint

   Think about what happens at the end of asset service.

5. 5.

   A piece of construction equipment costs ₹30,00,000 and has a salvage value of ₹5,00,000 after 10 years. If the interest rate is 9%, calculate the hourly depreciation assuming 1500 hours of operation per year.

   Hint

   Don’t forget to simplify after calculating EACs!

6. 6.

   An asset with an initial cost of ₹20,00,000 will depreciate to a 10% salvage value in 8 years at an interest rate of 7%. Calculate the equivalent annual cost of the asset.

   Hint

   Use the EAC formulas step by step!