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Equivalent Annual Cost and Minimum Attractive Rate of Return

Compare the equivalent annual costs for 2 pumps. The minimum attractive rate of return is 12%.

First cost of PUMP A is $8000
First cost of PUMP B is $6000

Salvage of PUMP A is zero
Salvage of PUMP B is zero

Life span of PUMP A is 8 years
Life span of PUMP B is 8 years

Annual repair costs of PUMP A is $500
Annual repair costs of PUMP B is $800

Annual operating costs of PUMP A is $1500
Annual operating costs of PUMP B is $1800

Use equivalent annual cost method.

Solution Preview

Compare the equivalent annual costs for 2 pumps. The minimum attractive rate of return is 12%.

First cost of PUMP A is $8000
First cost of PUMP B is $6000

Salvage of PUMP A is zero
Salvage of PUMP B is zero

Life span of PUMP A is 8 years
Life span of PUMP B is 8 years

Annual repair costs of PUMP A is $500
Annual repair costs of PUMP B is $800

Annual operating costs of PUMP A is $1500
Annual operating costs of PUMP B is $1800

Use equivalent annual cost method

Answer:
Note: To compare the two systems we calculate the ...

Solution Summary

The solution compares the equivalent annual costs for two pumps.

$2.19