A construction firm needs a new small loader It can be purch

A construction firm needs a new small loader. It can be purchased for $20,000. The firm expects the loader to have a salvage value of $6,000 after 7 years. The maintenance cost will be $1,400 each year. The firm\'s interest rate is 6.0% per year. Compute the Equivalent Uniform Annual Cost (EUAC).

Solution

R = 6%

Initial investment = $20000

Time = 7 year

Annual maintenance cost = $1400

Salvage value = $6000

Present worth of the cost = initial investment + present value of annual maintenance cost – present value of the salvage value

Present worth of the cost = 20000 + 1400*(1-1/1.06^7)/.06 – 6000/1.06^7

Present worth of the cost = $23825

Let, uniform annual cost = EUAC

Then,

EUAC = 23825/((1-1/1.06^7)/.06)

EUAC = $4267.9

So, the equivalent uniform annual cost is $4267.9.