Chapter 6, Problem 19QP

Equivalent Annual Cost Bridgton Golf Academy is evaluating new golf practice equipment. The “Dimple-Max” equipment costs $64,000, has a three-year life, and costs $7,500 per year to operate. The relevant discount rate is 12 percent. Assume that the straight-line depreciation method is used and that the equipment is fully depreciated to zero. Furthermore, assume the equipment has a salvage value of $7,500 at the end of the project’s life. The relevant tax rate is 34 percent. All cash flows occur at the end of the year. What is the equivalent annual cost (EAC) of this equipment?