SOLUTION: A printing machine costs 400,000 to purchase with a life of 10years with no salvage value. If the rate of interest is 10% per annum, compounded annually, compute the equivalent uni

Question 1147861: A printing machine costs 400,000 to purchase with a life of 10years with no salvage value. If the rate of interest is 10% per annum, compounded annually, compute the equivalent uniform annual cost of the machine If it will cost
P100,000 per year to operate?
Answer by Theo(13342) (Show Source): You can put this solution on YOUR website!
i get the equivalent uniform annual cost of the machine is equal to $165,098.16.
the equivalent annual cost for the machine itself is $65,098.16.
this is found using the annuity from a present amount with end of time period payments formula, or using a financial calculator to find the equivalent annual cost.
add the $100,000 annual cost for operation of the machine and you get a total equivalent annual cost of $165,098.16.
the annuity from a present amount formula is:

a = (p*r)/(1-(1/(1+r)^n))
a is the annuity.
p is the present amount.
r is the interest rate per time period.
n is the number of time periods.

the formula becomes:
a = (400000*.10)/(1-(1/(1+.10)^10))
the result is a = 65,098.16 rounded to the nearest penny.
add 100,000 to that and you get an equivalent annual cost of 165,098.16

i think that's what you're looking for.
i did a cash flow analysis in excel and got the same answer.
the answer appears to be correct if my assumptions are correct.
my assumptions are the equivalent annual cost is the equivalent annual cost of the 400,000 paid for the machine plus the annual operating costs.

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