Question
A company has 4 assets, each with a different lifespan for a project with a 5-year horizon. For each asset, its life-end salvage value has
A company has 4 assets, each with a different lifespan for a project with a 5-year horizon. For each asset, its life-end salvage value has been calculated as shown below:
| Asset | Life (Years) | Price (USD) | Anual Cost (USD) | Salvage Value (USD) |
| A | 5 | $100,000 | $6,500 | $5,000 |
| B | 3 | $150,000 | $11,450 | $10,000 |
| C | 7 | $57,000 | $3,400 | $2,500 |
| D | 9 | $20,000 | $1,200 | $1,000 |
Generate 5-year cash flow by showing the effect of the different useful lives of assets. Start with the investment on year 0. Use the Annual Equivalent Cost Method. Which asset will represent the minimum AEC? Assume a Cost of Capital of 7.5%
| 0 | 1 | 2 | 3 | 4 | 5 | |
| INITIAL INV | ||||||
| COST | ||||||
| SV | ||||||
| NCF | ||||||
| NPV | ||||||
| AUC |
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Fundamentals Of Cost Accounting
Authors: William Lanen
7th Edition
1264100841, 9781264100842
