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The equivalent annual cost of the shaft in $ per year

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A mine shaft is to be sunk at a cost of $5.6 million. The life of the shaft is estimated to be 15 years during which time the average planned rate of mineral production is 1.6 million tonnes per year. If the annual interest rate is 8.75%, determine
a. The equivalent annual cost of the shaft in $ per year
b. Corresponding production cost in $ per tonne mined

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This solution helps calculate the equivalent annual cost of the shaft in $ per year.

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a. The equivalent annual cost is obtained using the formula:

EAC = (Net Present Value)/(Annuity).

In this case the net present value is the cost of the mine shaft which is $5.6 million.

To calculate the annuity we ...

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