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Equivalent Annual Cost and Minimum Attractive Rate of Return

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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.

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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
See Also This Related BrainMass Solution

Equivalent annual cost method

You are contemplating converting your car from burning gasoline to propane.

The following information is available:

Propane conversion kit (parts and labor) $750

Salvage value of kit after 5 years is $100
Kilometres travelled per year 40,000
Gasoline consumption 8 liters per 100 km.
Average gasoline price over 5 years is 0.40 cents per liter.
Annual maintenance advantage burning propane is $100
Propane is 10% cheaper and 10% more efficient.
The minimum attractive rate of return is 12%

Is the conversion justified economically?

Use equivalent annual cost method.

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