A Five-Year Project Has an Initial Fixed Asset Investment of $613,600

question 33

Multiple Choice

A five-year project has an initial fixed asset investment of $613,600, an initial net working capital investment of $22,200, and an annual operating cash flow of -$76,540. The fixed asset is fully depreciated over the life of the project and has no salvage value. The net working capital will be recovered when the project ends. The required return is 11.7 percent. What is the project's equivalent annual cost, or EAC?

• A) −$248,092.76
• B) −$182,309.18
• C) −$147,884.01
• D) −$235,490.58
• E) −$242,212.22

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Definitions:

Marginal Rate

A rate that indicates the change in a variable (such as cost, revenue, or tax) as its underlying factor changes incrementally.

Substitution

The action of replacing one good or service with another based on changes in relative prices, incomes, or preferences.

Indifference Curve

A graph showing different combinations of two goods that provide the same level of utility or satisfaction to a consumer.

Utility

In economics, a measure of satisfaction, usefulness or value that an individual gains from consuming goods and services.