Question
Yell Group plc, the global advertising company, is evaluating the viability of a new machine to print telephone directories in emerging markets. Baseline machine costs
Yell Group plc, the global advertising company, is evaluating the viability of a new machine to print telephone directories in emerging markets. Baseline machine costs 65,000, has a three-year life and costs 12,000 per year to operate. The relevant discount rate is 10 per cent. Assume that the reducing balance (20 percent) depreciation method is used. Furthermore, assume the equipment has a salvage value of 20,000 at the end of the projects life. The relevant tax rate is 24 percent. All cash flows occur at the end of the year. What is the equivalent annual cost (EAC) of this equipment?
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