Engineering Board Exam Reviewer · Equivalent Uniform Annual Cost · hard

A machine costs P100,000. Its salvage value is P70,000, P50,000, P35,000, and P25,000 at the end of years 1, 2, 3, and 4, and its operating costs are P20,000, P30,000, P45,000, and P65,000 in those years. At 10% interest, what is the economic life (the life, in years, with the lowest EUAC)?

  1. 1
  2. 3
  3. 2
  4. 4

Answer

C. 2

Solution

Compute EUAC(N)=(P-SN)(A/P,i,N)+SNi+ (equivalent annual operating cost): N=1: P60,000; N=2: P58,571.43; N=3: P60,513.60; N=4: P64,389.14. The minimum is at N=2 years.

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