Economics Uniform Equivalent Annual Cost Question
The answer is $500,000 dollars. I am looking for the work that leads up to that. I believe you have to use present value but I’m not sure. Help is much appreciated.
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1. ; An oil transfer pump that costs $1,000,000 is expected to have a 3 year life, at which time it will have to be replaced with the same pump costing the same amount. ; Maintenance costs will increase each year. ; The cost per year is shown in the following table (including the purchase cost at time 0). ; Assume the maintenance costs occur at the end of each year and that each year is 1 year long. ; Use a 13%/annum interest rate. ; What is the uniform equivalent annual cost (UEAC) for the pump if we assume the UEAC occurs at the end of each year:
|
Year |
Cost |
|
0 |
1,000,000 |
|
1 |
50,000 |
|
2 |
75,000 |
|
3 |
96,513 |
