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A cost-cutting project has an initial cost of $2,000 and annual costs of $500 for each year of the project's 5-year life. The equivalent annual
A cost-cutting project has an initial cost of $2,000 and annual costs of $500 for each year of the project's 5-year life. The equivalent annual cost for this project is best described as the: 5 -year annuity payment that has the same net present value as the project's costs given a stated discount rate. 5 -year total of all costs divided by four. annual sales needed to offset these additional costs. lump sum payment at Time 0 that is equal to these additional costs at a given discount rate. 5 -year average aftertax cash flow resulting from the annual costs. QUESTION 7 A company is analyzing a proposed project using standard sensitivity analysis. The company expects to sell 5,000 units, \pm 15 percent. The expected variable cost per unit is $18 and the expected fixed costs are $14,000. Cost estimates are considered accurate within a \pm 6 percent range. The depreciation expense is $7,000. The sale price is estimated at $24 a unit, \pm 3 percent. What is the sales revenue under the pessimistic case scenario? $105,054 $103,016 $100,978 $98,940 $96,902 QUESTION 8 Assume a machine costs $250,000 and lasts five years before it is replaced. The operating cost is $37,200 a year. Ignore taxes. What is the equivalent annual cost if the required rate of return is 15.5 percent? (Hint: the EAC should account for both investment and annual operating costs) $136,189.02$130,307.69$124,426.36$118,545.03$112,663.70
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