A Machine Lasts 3 Years and Has a Purchase Price

question 2

Essay

A machine lasts 3 years and has a purchase price of $100. It costs $40 per year to operate and can be sold as junk for $15 at the end of its life. What is the EAC of the costs of operating a series of such machines into perpetuity if the discount rate is 15%?
A._15,3 -15/(1.15)³ = $181.47
The machine's equivalent annual cost is: $181.47/2.283 = $79.48

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Definitions:

Inflation-Adjusted

Pertains to financial figures that have been modified to account for inflation, thereby reflecting the true purchasing power of money over time.

Predictor Variables

Variables in statistical modeling that are used to predict or explain changes in a response variable.

Sequential Sums Of Squares

A method in statistics used to break down the total variation explained by a model into components related to each predictor variable.

Total Variation

In statistics, the total sum of squares that measures the overall variation within a dataset.