a five-year project has an initial fixed asset investment of $315,000, an initial nwc investment of $25,000, and an annual ocf of −$35,000. the fixed asset is fully depreciated over the life of the project and has no salvage value. if the required return is 11 percent, what is this project’s equivalent annual cost, or eac? (a negative answer should be indicated by a minus sign. do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

The annual cost of owning, running, and maintaining an asset over the course of its life is known as the equivalent annual cost, or EAC. EAC is frequently used by businesses to make capital budgeting decisions since it enables them to compare the cost-effectiveness of different assets with different lifespans.

Depreciation = 315000/5 = 63000

NPV= -(3,15,000 + 25000) + [tex]\frac{-35000 + 63000}{1+0.11}[/tex] + [tex]\frac{-35000 + 63000}{ 1.11^{2}}[/tex] +[tex]\frac{-35000 + 63000}{ 1.11^{3}}[/tex] +

[tex]\frac{-35000 + 63000}{ 1.11^{4}}[/tex] + [tex]\frac{-35000 + 63000}{ 1.11^{5}}[/tex] = -221, 678.6

The project’s equivalent annual cost is:

EAC = [tex]\frac{-221678.6 X 0.11}{(1-1.11)^{-5} }[/tex] = - 59,979.65

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