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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The solution compares the equivalent annual costs for two pumps.
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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 ...
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